China may still be closed, and the US is returning from President's Day holiday, but global stock markets haven't missed a beat and on Tuesday the MSCI World index hit a fresh all time high, rising for a 12th straight session - its longest streak of gains in 17 years as optimism over covid vaccines, stimulus and the economic recovery in general swept across markets.

US emini futures also hit record highs on Tuesday as investors piled up into reflationary and economically sensitive stocks such as energy and banks on hopes of more fiscal aid to lift the world’s biggest economy from a coronavirus-driven slump. Dow e-minis were up 200 points, or 0.63%, S&P 500 e-minis were up 21.50 points, or 0.55%, and Nasdaq 100 e-minis were up 67.75 points, or 0.49%.

Morgan Stanley, Goldman Sachs, JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp rose between 1.2% and 1.5% in premarket trading as 10-year U.S. Treasuries touched their highest since late March.

The energy sector was also bid up with oil stocks ExxonMobil Corp, Marathon Oil, Devon Energy Corp and shale-focused player Occidental Petroleum Corp gained between 2.7% and 4.6% after oil prices jumped to a 13-month high. The surge in oil has served as a tailwind for the reflation trade which is powering assets tied to economic growth and price pressure, including commodities and cyclical stocks as Joe Biden pushes ahead with his plan to pump an extra $1.9 trillion in stimulus into the economy. At the same time, investors are riding a wave of speculative euphoria from penny stocks to Bitcoin amid abundant policy support.

“Continued monetary stimulus and bursts of fiscal support maintain a strong foundation for risk assets,” said Seema Shah, chief strategist at Principal Global Investors.

Europe's Stoxx 600 Index erased earlier gains of as much as 0.3% to trade flat with defensive sectors leading losses on sharply higher yields and sentiment was dented heading into cash trade following reports that China is mulling curbs over rare earth metals exports to the US, in a move that could impact US-Sino relations in the early days of the Biden Admin. Consumer products, telecom and media shares are worst performers, while basic resources, energy stocks climb. The European travel and leisure index rose as much as 0.7% in fourth day of gains, amid optimism around Covid-19 vaccine roll-outs and declining infection infection rates. Biggest gainers including tour operator TUI (+5.1%), airline group Ryanair (+3.6%) and hotel operator Accor (+1.1%). SXTP benchmark up 4.8% in four sessions, touches highest level since Feb. 26, 2020. Here are some of the biggest European movers today:

• Glencore shares rise as much as 4.1%, hitting the highest since May 2019, after the commodities group’s earnings beat estimates, it reinstated its dividend and Citi said the results look “strong.”
• Kerry Group shares jump as much as 4.5%, the most since Nov. 10, with Jefferies saying volume growth is reassuring and the consumer foods unit has performed well.
• DSM shares gain as much as 3% to a record with Morgan Stanley saying the Dutch vitamin company’s outlook looks well underpinned by solid fourth-quarter results.
• Allegro shares rise as much as 3.2% after Goldman Sachs upgraded the Polish e-commerce firm to buy, saying the stock is an an “attractive entry point” following recent weakness.
• Rotork shares climb as much as 5.8%, hitting a record high, after Jefferies upgraded the engineer to buy

Investor morale in Germany rose beyond even the most optimistic forecast in February on expectations consumption will take off in the coming months, the ZEW economic research institute said on Tuesday, buoying the outlook for Europe’s largest economy. The ZEW said its survey of investors’ economic sentiment surged to 71.2 points from 61.8 the previous month and well above the estimate of a fall to 59.6, surpassing even the highest forecast, of 68.0.

“The financial market experts are optimistic about the future. They are confident that the German economy will be back on the growth track within the next six months,” ZEW President Achim Wambach said in a statement. “Consumption and retail trade in particular are expected to recover significantly, accompanied by higher inflation expectations,” he added.

Earlier in the session, Asian stocks also rose to a fresh record, led by gains in Hong Kong, which resumed trading after Lunar New Year holidays. SoftBank Group climbed to an all-time high and was the biggest contributor to gains in the MSCI Asia Pacific Index. Financials were the biggest boost among industry groups as U.S. Treasury yields rose. Energy was the region’s top-performing sector on elevated oil prices owing to disruptions at refineries in Texas amid a cold snap. All major national benchmarks were in the green. Japanese stocks extended a rally that saw the Nikkei 225 breach the 30,000 level for the first time since 1990 on Monday. Markets in China, Taiwan and Vietnam remained closed for holidays

As noted above, global debt markets extended a selloff as investors shift money to riskier assets. Treasury 10-year yields rose four basis points to touch 1.26% -- the highest since last March -- while the 30-year equivalent pushed above 2.05%. Treasury yields higher by up to 6.5bp across long-end of the curve vs. Friday session close; 10-year yields reach 1.265% and 30-year tops at 2.077% during the selloff, both multi-month highs bringing convexity, gamma hedging flows into play. In Europe, German bunds and U.K. gilts both saw benchmark yields gain five basis points. Latest leg lower led by gilts, which underperform as global yields stretch higher with gains in stocks.

In Europe, fixed income took a breather after Monday’s bear steepening with curves mixed: long end Germany richens ~1bps, Gilts are steady. Cash treasuries bear steepen, playing catch up after Monday’s closure. Peripheral and semi-core spreads tighten to Germany at the margin, with the exception of Italy which widens a touch with focus on syndicated issuance.

In FX, the Bloomberg dollar index dipped into the red slipping through Asia’s lows. Majors were moderately bid with NZD, NOK and SEK topping the G-10 scoreboard. Cable drifted after failing to breach 1.3950 overnight, USD/JPY was offered back toward 105. Turkish lira leads in EMFX, trading lows of 6.91/USD.

In commodities, Brent held near a 13-month high after freezing temperatures crippled the Texas power system and disrupted crude production. Nearly 5 million people across the U.S were plunged into darkness as homes and businesses lost power. Crude futures drifted off best levels with front-month WTI back on a $59-handle. Brent finds support near $63 so far. Gasoline and heating oil fade from best levels as the Texan energy crisis persists.

Natural gas futures for March delivery surged as much as 6.3%. In metals, copper climbed to the highest since 2012 and tin extended a dramatic surge. Citigroup Inc. forecasts copper prices will rally to $10,000 a ton in six to 12 months on a better-than-expected recovery in demand, most notably outside China. Spot gold has a choppy session within Asia’s range trading near $1,824/oz. Base metals are mixed: LME lead lags, copper outperforms

And in keeping with new record highs, Bitcoin did just that rising above $50,000 moments ago.

A flurry of recent announcements indicates the cryptocurrency is winning more mainstream attention, after Tesla Inc.’s purchase catapulted it onto the agenda of corporate treasurers.

Expected data include the U.S. Empire State Manufacturing Survey. Elsewhere this week we get earnings Daimler, Credit Suisse, Deere, Danone and Nestle; Euro-area finance ministers will discuss the bloc’s current economic situation and outlook on Tuesday while the Fed minutes from the January meeting are due Wednesday and U.S. retail sales figures come on Wednesday.

Market Snapshot

• S&P 500 futures up 0.4% to 3,947.75
• STOXX Europe 600 little changed at 419.75
• MXAP up 0.5% to 220.66
• MXAPJ up 0.4% to 740.84
• Nikkei up 1.3% to 30,467.75
• Topix up 0.6% to 1,965.08
• Hang Seng Index up 1.9% to 30,746.66
• Shanghai Composite up 1.4% to 3,655.09
• Sensex down 0.1% to 52,094.46
• Australia S&P/ASX 200 up 0.7% to 6,917.27
• Kospi up 0.5% to 3,163.25
• German 10Y yield little changed at -0.39%
• Euro up 0.1% to $1.2147
• Brent futures down 0.4% to $63.04/bbl
• Gold spot up 0.3% to $1,824.46
• U.S. Dollar Index down 0.3% to 90.25

Top Overnight News from Bloomberg

• Already low short-term interest rates are set to sink further, potentially below zero, after the Treasury announced plans earlier this month to reduce the stockpile of cash it amassed at the Fed over the last year
• U.S. investors return Tuesday from the Presidents’ Day holiday to find the reflation trade in full force and global bond markets in retreat
• Investors betting Bank of Japan’s review next month will lead to higher bond yields may need to cool their ardor, at least according to an analysis of the language used recently by policy makers
• China is exploring whether it can hurt U.S. defense contractors by limiting supplies of rare-earth minerals that are critical to the industry, the Financial Times reported

A quick look at global markets courtesy of NewSquawk

Asian equity markets traded higher across the board to extend on Monday’s gains amid a lack of any major changes on the macro front and as trade continued to pick up from the holiday lull caused by the Lunar New Year/Spring Festival holidays in China and Presidents’ Day stateside. ASX 200 (+0.7%) was positive with the index led by cyclicals and with miners encouraged after BHP results in which the mining giant reported an increase in H1 underlying net and revenue, as well as declared a record interim dividend. Big 4 bank NAB was also kept afloat despite flat results with Q1 cash earnings inline with the previous year, although this was still 47% higher than the quarterly average during first 6 months of 2020 and it noted a 96% decline in credit impairment charges. Nikkei 225 (+1.3%) added to its highest levels in more than three decades as exporters cheered a weaker currency and with BoJ Governor Kuroda sticking to the dovish script in which he affirmed that ETF purchases are part of the monetary easing program and that the BoJ will not end nor seek an exit from ETF purchases for the time being. Hang Seng (+1.9%) was jubilant on return from the holiday closures with notable advances in the blue-chip energy stocks as they played catch up to the continued ascent in oil prices and with financials also bolstered by the rising yield environment and due to some expectations HSBC could resume dividends following next week’s board meeting, while IMAX China shares rocketed over 30% after China’s box office revenue reached CNY 5bln during the first 3 days of the Spring Festival holidays. However, some of the gains for the regional bourses and US equity futures were later reversed in late trade after reports that China is mulling curbs on rare earth metals exports, targeting the US defense sector. Finally, 10yr JGBs were lacklustre amid the gains in stocks and follows recent pressure in T-note futures as the US 10yr yield rose higher by as much as 5bps to briefly touch 1.25% and the US 30yr yield extended further above 2.00%, while weaker results at the 5yr JGB auction also dragged the 10yr benchmark to beneath 151.50 and saw its respective yield increase to 8bps which is the highest in almost a year.

Top Asian News

• Myanmar Shuts Internet Again as Protest Crackdown Continues
• Saudi Arabia Adds Pressure on Global Firms to Move to Riyadh
• Kuroda Nudges 2% Inflation Into 2024 or Beyond in Latest Delay

European stocks opened Tuesday’s session with modest gains across the board despite the firmer APAC handover, but sentiment was somewhat tainted heading into cash trade following reports that China is mulling curbs over rare earth metals exports to the US, in a move that could impact US-Sino relations in the early days of the Biden Admin. US equity futures meanwhile trade in positive territory with some outperformance seen in the RTY (+1.0%) as the US waits to play catch-up on its return. Bourses in Europe meanwhile continued to trade sideways during early hours (Euro Stoxx 50 +0.1%) due to the lack of news flow and catalysts, although the sizeable upside surprise in the German ZEW sentiment survey provided the region and overall sentiment with a mild uplift. Sectors are predominantly in the green and portray a cyclical bias with Oil & Gas as the outperformer (+1.3%) as oil prices remain somewhat elevated, on the flip side the defensive Healthcare (-0.3%) and Consumer Staples (-0.1%) are both softer on the session. The sectorial laggard in the session thus far is Media (-0.5%) following Vivendi’s (-2.2%) outperformance yesterday. Cineworld (+6.0%) is the individual outperformer amid reports that they are proposing a vaccine passport to allow them to re-open. Elsewhere, HSBC (+2.7%) is higher after Co. shares rose over 5% in Hong Kong trade with traders attributing it to the resumption of the dividend programme following the board meeting on 23rd February. Meanwhile, cooperate updates from mining giants BHP (+1%) and Glenore (+3%) prop up the Materials sector, with the former declaring a record interim dividend alongside a constructive view on Chinese demand, while the latter topped adj. EBITDA forecasts and recommended a distribution of USD 0.12/shr vs exp. USD 0.06/shr.

Top European News

• Germany Inc. Has Had It With Merkel’s Go-Slow Reopening Plan
• Czech Tycoon Said to Tap Banks for IPO of $5 Billion Telecom Arm
• Brexit Trade Recovers With Fewer Cross-Channel Cargoes Rejected
• Russia’s Pandemic Winners Drive $10 Billion Share Sale Pipeline

In FX, having been pipped by the Pound on Monday, the Kiwi is now clearly ahead of its major rivals, albeit largely at the expense of ongoing weakness in its US counterpart and Aussie underperformance as opposed to anything NZ specific or supportive. Indeed, as the DXY continues to languish below 90.500 between 90.375-201 parameters, Nzd/Usd has advanced beyond 0.7250, and the Aud/Nzd cross is now eyeing 1.0720 as Aud/Usd retreats from a pop over 0.7800 in wake of dovish RBA minutes befitting the QE extension last Tuesday and guidance indicating no change in rates for at least 3 years. Moreover, news that lockdown in Melbourne may be extended and a downturn in the CNH following reports that China is considering a curb on the export of rare earth metals, aimed at the US defence sector, are also undermining the Aussie to an extent.

• GBP/EUR - Although Sterling has pared some gains and given up pole position on the G10 grid as noted above, Cable looks more assured on the 1.3900 handle and Eur/Gbp edged closer to 0.8700 before bouncing as the Euro takes its turn to forge further gains vs the Dollar. However, Eur/Usd is still facing formidable technical resistance in the form of the 50 DMA (1.2157) not to mention hefty option expiry interest up at 1.2200 (1.5 bn) if it manages to make a clean upside break with impetus from an upbeat ZEW headline economic sentiment reading and relatively upbeat accompanying comments.
• CHF/CAD/JPY - The Franc is also firmer against the Buck through 0.8900, but on a par with the Euro just above 1.0800 amidst SNB intervention, while the Loonie extended towards 1.2600 alongside WTI on approach to Usd 61/brl before fading in tandem. Conversely, the Yen remains depressed on risk grounds and BoJ Governor Kuroda stating no intention of ending ETF purchases any time soon, with Usd/Jpy pivoting 105.50 that aligns with the 200 DMA ahead of Japanese machinery orders and trade data.
• SCANDI/EM/CRYPTO- The Nok has breached 10.2000 vs the Eur, and on top of recent crude-related appreciation the Krona will be relieved to Norwegian oil workers and the SAFE labour union have agreed a pay deal to avoid strike action. Meanwhile, the Sek has finally cracked 10.1000 and is close to pre-Riksbank peaks on the brink of 10.0000 awaiting minutes of the meeting on Friday. Elsewhere, the Try has extended gains beyond 7.0000 in the run up to the CBRT and Zar to just shy of 14.4000 on better prospects of vaccines to combat SA’s coronavirus strain, while Bitcoin still has the bit literally between its teeth and is on the cusp of Usd 50k.

In commodities, WTI and Brent front month futures gave up their mild overnight gains as European cash equity trade went underway with no particular catalyst at the time to entice the price action, albeit a more likely explanation could be the broader sentiment deterioration around this time. Throughout the session, the crude benchmarks have been ebbing lower with WTI further below USD 60/bbl (vs high 60/bbl), whilst its Brent counterpart meanders just north of USD 63/bbl (vs high 63.34/bbl). That being said in the grander scheme, fundamentals keep prices buoyed near recent highs, with short term supply woes emanating from the deep freeze across Texas, prompting the wells and refineries to restrict or close operations. Exxon began shutting its 369k BPD Beaumont and 560k BPD Baytown refineries, whilst Citgo Petroleum said some units at its 167k BPD Corpus Christi oil refinery were shutting. Further, LyondellBasell’s 264k BPD Houston refinery is to operate at minimum production whilst it shut most units at Marathon Petroleum’s 585k BPD Galveston Bay plant. In terms of pipeline impacts, Enbridge said a 585k bpd crude oil pipeline that runs from its terminal to Cushing, Oklahoma (the largest US oil storage hub) was halted because of power outages. Kinder Morgan also reported gas-pipeline capacity constraints in Arkansas, Illinois, Louisiana, New Mexico and Texas. Meanwhile, Norway's SAFE labour union agreed a wage deal for Mongstad Port workers to avert a shutdown of major oil and gas fields. As a reminder, Equinor yesterday warned that a walkout would put more than 600k barrels of daily crude output from the Johan Sverdrup and Troll fields at risk. Barring weather developments in Texas, participants will be keeping and eagle-eye on commentary out of any OPEC+ members, who will be closely watched for any nuances as to what the group could opt to do or propose against the backdrop of mass vaccinations and oil prices back at pre-COVID levels. Moving onto demand, the continued stimulus-lift and vaccine hopes keep prices underpinned, however, it is worth highlighting an S&P Global report yesterday which highlights a notable absence of Chinese demand for Atlantic basin crudes during the February and March cycles, with sources citing the refinery maintenance season in the country. Elsewhere, spot gold and silver are modestly firmer as a function of the softening Dollar, with the former around 1823/oz and contained within recent ranges. Turning to base metals, LME copper trades on a modestly firmer footing with aid derived by the softer Dollar and as mining giant BHP highlighted robust Chinese demand for the base metal.

US Event Calendar

• 8:30am: Feb. Empire Manufacturing, est. 6.0, prior 3.5
• 11:10am: Fed’s Bowman Speaks to Community Banking Conference
• 12:30pm: Fed’s George Discusses Economic Outlook
• 1pm: Fed’s Kaplan Discusses the Economy
• 3pm: Fed’s Daly Discusses Economy and Inequality
• 4pm: Dec. Total Net TIC Flows, prior $214.1b

DB's Jim Reid concludes the overnight wrap

Though it was a quieter session with US markets closed for the Presidents’ Day holiday, the global reflation theme continued apace yesterday, and risk assets showed continued strength across multiple asset classes. In fact the MSCI World Index, which includes a range of developed world equities, rose for an 11th straight session, marking the longest winning streak for the index since January 2018. If it manages to notch a 12th gain today, it’ll become the longest winning run since December 2003, back when Arsenal were on their way to winning the Premier League unbeaten, and before most UK households had internet access. I even had a full head of hair. Actually thinking back I was probably in my long denial phase.

Anyway, whether or not we reach that particular milestone, yesterday saw equity indices set new records around the world thanks to persistent optimism on the vaccine rollout and the chances of fresh stimulus. Here in Europe, the STOXX 600 (+1.32%), the CAC 40 (+1.45%) and the FTSE MIB (+0.83%) all reached their highest levels since the pandemic began, and Germany’s DAX (+0.42%) hit an all-time high. Within the STOXX 600, the leading sectors included energy (+3.98%), communication services (+2.66%) and financials (+2.17%), whilst vaccine hopes sent the STOXX 600 Travel & Leisure index up +2.68% to its own post-pandemic high. In terms of the moves elsewhere, Japan’s Nikkei closed above 30,000 yesterday for the first time since 1990 on the back of stronger-than-expected GDP data and this morning is up a further +1.90%. And in the US, equity futures are pointing towards yet more all-time highs for the major indices, with S&P 500 futures up +0.66%.

Turning to other markets in Asia and rally continues with the Hang Seng (+1.41%) leading the gains as it reopened post holidays. The Kospi (+0.29%), India’s Nifty (+0.51%) and Asx (+0.70%) are also up. In keeping with the reflation trade, yields on 10y USTs are up +2.3bps this morning to 1.234% while the 2s10s curve has steepened by +2bps. Elsewhere, Bitcoin prices are up +2.30% to $49,314 this morning after yesterday -1.35% move lower.

As global equities are soaring to new highs, there are some pretty big ructions in energy markets, thanks to seriously cold weather in the southern United States, which is raising concerns over disruption to global supplies. In Texas, which is currently seeing its coldest temperatures in decades, with areas of the state seeing lower temperatures than Alaska, there were a series of rolling blackouts as a result of high electricity demand, and lower oil production. This has helped send prices up to levels not seen in over a year, with WTI (+1.33%) rising to $60.25/bbl, and Brent Crude (+1.39%) up to $63.30/bbl. Staying on commodities, yesterday saw a number of other inputs reach multi-year highs as well, with copper (often taken as a key industrial bellwether) up a further +0.74% to an 8-year high yesterday, which will add to the questions raging amongst the economics profession on the likelihood of higher inflation ahead.

Given the risk appetite among investors, safe havens didn’t fare so well yesterday and the selloff in sovereign bond markets continued. Treasury markets were closed given the holiday, but yields moved higher across the continent in Europe, with 10yr bund yields climbing +4.6bps to close at their highest level since last June, as 10yr gilt yields (+5.4bps) also closed at their highest level since last March. Both bunds and gilts saw a noticeable steepening in the yield curve too, with the German 2s10s curve at its steepest since June, and the UK 2s10s at its steepest since March. Italian debt moved roughly in line with bunds following Mario Draghi’s installation as Prime Minister on Saturday, and the spread of BTPs over bunds rose just +0.2bps.

In terms of the latest on the coronavirus pandemic, there was some further good news out of the UK as the number of confirmed daily cases fell beneath 10k for the first time since October 2. Prime Minister Johnson is due to announce the roadmap to ease restrictions next Monday, and said that “what we want to see is progress that is cautious but irreversible”. Sterling has benefited from the UK’s successful vaccine rollout, closing above $1.39 yesterday for the first time since April 2018, having also been supported by better-than-expected data releases in the last couple of weeks and the BoE pushing back somewhat on the likely use of negative rates in the coming months. Meanwhile, the EU is reportedly in advanced negotiations with Moderna to buy an additional 150mn doses in a bid to boost its vaccination program. The doses will likely be for the third quarter. Across the other side of Atlantic, the US recorded “just” 53,234 new cases over the past 24 hours, the lowest daily number since October 18, as the holiday wave is subsiding in almost all the states.

There wasn’t a great deal of data out yesterday with the US holiday, though Euro Area industrial production fell by a larger-than-expected -1.6% in December (vs. -0.8% expected). That meant the year-on-year decline deteriorated to -0.8% (vs. -0.6% in November), which is the first time that’s worsened since the height of the pandemic back in April.

Looking to the day ahead, the data highlights include February’s ZEW survey from Germany, the Empire State manufacturing survey from the US, as well as the second estimate of Q4 GDP in the Euro Area. There’ll also be a number of central bank speakers, including the Fed’s Bowman, George, Kaplan and Daly, while earnings releases include CVS Health and AIG.