European shares are modestly lower as investors monitor tense events in Spain and as focus turns to Thursday’s ECB meeting; US equity futures have rebounded from yesterday’s sharp but shallow sell-off and are in the green amid rising odds of U.S. tax reform and the imminent unveiling of the next Fed chair while Asian shares rise and Japan extends its winning streak to a record 16 days. The euro edged higher after data showed Europe’s economy is maintaining momentum, while the USD/JPY managed to recover all of yesterday’s sharp losses.

The MSCI’s 47-country world share index stayed near all-time highs after a drop in General Electric shares on Wall Street had seen the VIX volatility index spike up, however that move has been largely faded since.

Overnight currency moves were mostly contained, but the greenback strengthened against most peers and U.S. equity futures edged higher amid continued speculation over who will lead the Federal Reserve, and as optimism over tax reform proved resilient. “There is some support building for Donald Trump’s tax reforms,” Ipek Ozkardeskaya, an analyst at London Capital Group, told Bloomberg by email. News reports suggest “that fiscal hawks may be willing to disregard deficit spending to allow Trump to go ahead with his tax cut plans to boost growth. If approved, the fiscal reforms will cost an arm to the government, but on the other hand, it is important for the congress to achieve some progress before the end of the year in order to restore confidence.”

The USD rallied across G-10 for bulk of the session, with the DXY back to top of recent range between 50- and 100-DMAs. The New Zealand’s dollar stumbled to a five-month low as the incoming Labour coalition’s policies unsettled investors. Prime Minister-designate Jacinda Ardern’s tough stance on foreign investment in housing and on immigration could prove negative for the currency, given the country runs a current account deficit. In addition, Ardern said on Tuesday her government plans to review and reform the Central Bank Act to possibly include employment, alongside inflation, as a dual target. “Everything happening so far is something that is creating uncertainty when it comes to central bank independence,” said Manuel Oliveri, currency strategist at Credit Agricole. “But you also have to keep in mind Labour did point in that direction during the election so it’s not a huge surprise that they want such changes.”

As Bloomberg notes, given that the timing of an announcement on the next Fed chair isn’t certain and that tax reform is a lengthy process, investors’ more immediate focus looks set to be Thursday’s European Central Bank meeting. The ECB is expected to offer more insight into its plans for tapering the QE program that is currently planned to continue until the end of 2017. Expectations are for a €30 billion QE extension for at least 9 months, with some more dovish variants possible. Officials have acknowledged that stimulus is still required to nurture inflation and that interest rates will remain “at or below” current levels for the foreseeable future.

Ahead of the ECB, the consensus trade is to go short the 10Y Bund which however has so far failed to move the benchmark paper substantially as any asset volatility now appears a thing of the past.

Overnight, the euro was a little stronger after strong PMI data showed Europe’s economy maintaining momentum, but the region’s stocks drifted downward as investors kept one eye on events in Spain and the all-important ECB gathering; Bunds sold off from the open with further momentum driven by PMIs and related inflation commentary; USTs and gilts dragged lower in tandem, UST curve steepens. German banks rallied after takeover speculation on Commerzbank (+3.9%); energy stocks rally as crude futures react positively to further reports of output cut extension.

Japanese stocks rose again, with the Nikkei 225 Stock Average extending its record-breaking rally to a 16th day to a fresh 21 year high, as investors shifted their focus to corporate earnings from Sunday’s general election helped by the weaker yen which failed to maintain its gains during the US session. The Topix erased an early decline, completing a 12-day gain, the longest since November, with banks and telecommunications companies providing the biggest boost. Japan’s earnings season kicked off in earnest this week, with Canon Inc. and Nidec Corp. releasing results today, followed by Fanuc Corp., Fujitsu Ltd. and NTT Docomo Inc. later this week. “There’s still more room for Japanese stocks to advance, given the firm prospects for companies’ earnings,” said Kyouko Amemiya, a senior market advisor with SBI Securities Co. in Tokyo. “The economy as well as corporate performance are on firm footing globally. Japanese stocks still look cheap in relative to U.S. equities.” While Sunday’s general election result has already been priced in to a degree, stocks still have some “upside”,

Elsewhere in Asia, equity markets traded with modest gains in what was a quiet and rangebound trading session amid a lack of drivers. Regional bourses shrugged off the weak performance by their US counterparts which pulled back from record levels, with ASX 200 (Unch.) indecisive and Hang Seng (Unch.) and Shanghai Comp. (+0.1%) just about kept afloat as another substantial liquidity operation by the PBoC (140BN net on the session and a whopping 840BN in the past week) only provided minimal support heading to the close of the National Congress. Finally, 10yr JGBs were flat with demand subdued by a modest risk tone and after an uneventful enhanced liquidity auction for super-long JGBs.

Europe’s key stock benchmark was little changed, as most European stocks dipped and bond yields drifted higher on Tuesday, as data from the euro zone’s top economies bolstered the case for the European Central Bank to signal a sizeable cut this week to its stimulus measures. Individual equities dominate moves amid earnings reports, while strong manufacturing data provided support to risk. The Stoxx Europe 600 Index fell less than 0.1%, ahead of an ECB meeting later this week. Apple supplier AMS saw a spectacular 15 percent jump after it pointed to strong demand ahead of the iPhone X release while Boliden drops 9.9% on worse-than-expected profit. France’s CAC 40 up 0.3% on earnings and after October manufacturing data beat estimates. Commerzbank outperformed following the company drafting in financial advisers, preparing for potential bids from European rivals. Europe’s earnings season has begun gaining some traction, notably, Essilor, affirming guidance and leading the CAC.

Also overnight as reported earlier President Xi Jinping of China consolidated his power before the Communist Party’s unveiling of its top leaders on the Politburo and supreme Standing Committee on Wednesday. The composition may determine the pace of Xi’s reform plans, from deleveraging to modernizing the military. Stocks in Shanghai gained, while those in Hong Kong dropped.