Funda/political wrap: Italian politics to shake up the euro next week?

The greenback has been better bid and hit a 12-day high after Powell's testimony while the pound slipped overnight on EU Brexit treaty draft. Commodities have been weaker, especially in oil, on dollar strength and supply worries. Shares in Europe and Stocks in the US have been falling and hampered by the prospects of faster rate hikes from the Fed. Meanwhile, it is the end of the month, and political tensions are bound to rise on March.

The markets, so far, have been quite sanguine when it comes to Sunday's German SPD membership vote that unexpectedly rejected a grand coalition with Merkel's conservatives. However, what might be more concerning are the Italian elections. The 2018 Italian general election is due to be held on 4 March 2018 after the Italian Parliament was dissolved by President Sergio Mattarella on 28 December 2017.Eurosceptic Lega being a major risk factor. Should the unexpected happen, and Lega wins more seats than Forza Italia there will be a centre-right coalition. Out of the three parties, Forza Italia is currently in the lead in the polls - (The market is still very unbalanced on the long side when it comes to speculative positions and a political upset could send the euro crashing as positions are squared off).

Fundamental and political headlines from the day so far:

(Source: RTRS/LiveSquawk)

Brexit:

• EU draft Brexit treaty demands that n Ireland stays in customs union.
• DUP’s foster: EU draft text is constitutionally unacceptable.
• Uk pm may: no UK PM could agree to the EU draft Brexit deal
• EU’s Barnier: ‘no surprises to UK partners’ in Brexit draft.
• UK Tory rebellion on customs union grows to 10 lawmakers.
• UK Foreign Minister Johnson: N. Irish border issue being used to frustrate Brexit.
• Irish PM Varadkar: up to UK to detail alternative border proposals.
• UK PM May's spokesman: Govt is seeking to find a solution to the northern Irish border as part of wider EU agreement.
• UK PM May's spokesman: Expects talks on EU withdrawal agreement to continue for several months.
• - says it would be surprising at this point if we did agree on everything with the EU.
• - govt agreed to joint report in December but the pm doesn’t agree to text put forward today.
• - we have been clear that Britain wants a neutral arbiter of the withdrawal agreement, and continued direct ECJ jurisdiction is not in keeping with British stance.
• -  EU citizens are ‘free to come to UK’ during Brexit transition phase.

Central Banks:

• ECB’s Hansson: ECB will continue along announced policy path.
• BoJ's Kuroda: policy normalisation would be 'very gradual'.
• BoJ: Plans to keep the current pace of bond buying in March.
• Fed's Kashkari: Unanchored inflation expectations in past caused by lack of Fed independence.
• Fed's Kashkari: Should allow tight labour market to 'continue to run' to get more workers back into work.
• Fed's Kashkari: Wants to see wage growth build. 
• Fed’s Kashkari: Needs more productivity growth to lift wages.
• Fed’s Kashkari: Lack of wage growth signals there is still job market slack.

White House:

•  US regulators are considering changes to the "Volcker rule" that wall street has sought for years – RTRS sources.
• - considering eliminating big banks' responsibility to prove they do not trade on their own account.
• - also considering making it clearer which types of funds banks are banned from investing in.
• - may permanently exempt some foreign funds from the ban.
• - consider naming a lead regulator to oversee the rule's enforcement.

Data:

• US Q4 2017 PCEunrevised at 3.8pct vs. est 3.7pct and prev 3.8pct.
• US Q4 GDP price index revised down to 2.3pct vs. est 2.4pct and prev 2.4pct.
• US Q4 PCE price index revised down to 2.7pct vs. prev 2.8pct.
• US Q4 core PCE price index unrevised at 1.9pct vs. est 1.9pct and prev 1.9pct.
• US Chicago PMI Feb: 61.9 (est 64.1; prev 65.7).
• US pending home sales (m/m) Jan: -4.7% (est 0.5%; prev 0.5%).