In the latest quiet trading session, European shares rose while Asian stocks fell and S&P futures were little changed. Minutes of the Fed’s last meeting damped prospects for a U.S. interest-rate hike, sending the  Bloomberg Dollar Spot Index doen 0.3%, approaching a three-month low. Dollar weakness continues to buoy commodities, with the Bloomberg Commodity Index set for the most enduring rally in more than two months, as WTI flirted with $47 and Brent briefly rising above $50. 

Dollar weakness also pushed the MSCI emerging market  index to a fresh one year high. The latest leg lower in the dollar was the result of yesterday's Fed minutes, which showed officials saw little risk of a sharp uptick in inflation and pushed odds of a rate increase this year back below 50 percent. “The message appears to be that as much as a September hike is a possibility, the Fed is unlikely to move until there is a consensus on the outlook for growth, hiring and inflation,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “Recent data would therefore suggest a hike is not imminent.”

Here is Jim Reid's take on yesterday's FOMC minutes:

The reaction in markets suggested that the minutes were on the dovish side, certainly relative to what we’d heard from Dudley although it still felt like investors were left fairly confused. The question is probably what is the more up to date view and should we place higher value on Dudley’s comments as a barometer of the overall leaning at the Fed? Dudley is due to speak again this afternoon on regional economic conditions at a press briefing however Q&A is expected after so that will be interesting to watch. A reminder than next week on Friday we’ll also hear from Fed Chair Yellen at Jackson Hole.

In terms of the minutes the most notable takeaway was the mention that ‘members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labour market and economic activity’. This was followed with ‘a couple of members preferred also to wait for more evidence that inflation would rise to 2% on a sustained basis’ and also that ‘some other members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation’.

The text also revealed that ‘several suggested that the committee would have ample time to react if inflation rose more quickly’ while others were of the view that ‘labour market conditions were at or close to those consistent with maximum employment and expected that the recent progress in reaching the Committee’s inflation objective would continue, even with further steps to gradually remove monetary policy accommodation’. The minutes also suggested that the committee was encouraged by the post-Brexit reaction in markets. The text showed that ‘participants generally agreed that the prompt recovery of financial markets following the Brexit vote and the pickup in job gains in June had alleviated two key uncertainties about the outlook’.

Speculation that central banks in the world’s biggest economies will remain accommodative propelled global equities to a one-year high this month. “Today is a breather after yesterday’s declines,” said Benno Galliker, a trader at Switzerland’s Luzerner Kantonalbank AG. “I am optimistic about the market overall - there is no other option but equities at the moment, as rates are going down and down and down. Central banks are going to remain quite accommodating, now politics have to come in to improve the mood.”

The Fed minutes struck a more dovish tone when compared with comments this week from New York Fed chief William Dudley, who flagged the prospect of a rate hike as soon as next month. Dudley will hold a press briefing on Thursday in New York and his San Francisco counterpart, John Williams, is also due to speak.

Britain’s pound was the biggest winner against its U.S. counterpart, surging after a report showed U.K. retail sales jumped more than economists forecast in the month after Britain voted to quit the European Union. Following last night's devastating Japan trade data, which showed imports and exports crashing the most since the crisis...

... economic data out of the UK showed retail sales unexpectedly surged in the month after Britain voted to quit the European Union, as hot weather bolstered sales of clothing and footwear and a drop in the pound encouraged tourists to snap up watches and jewelry. 

The volume of goods sold in stores and online jumped 1.4 percent, after dropping 0.9 percent in June, figures from the Office for National Statistics showed on Thursday, exceeding a prediction of 0.1 percent in a Bloomberg survey. Sales excluding auto fuel advanced 1.5 percent. As a result, sterling strengthened 0.9 percent to $1.3160.

In Japan, the Nikkei 225 tumbled -1.6%, pressured by a sliding USD/JPY which fell below 100.00 early in the session, as well as July trade figures which showed both exports and imports declined by the most since 2009, while ASX 200 (-0.5%) was weighed ON by disappointing earnings. Chinese markets are positive with the Hang Seng (+1.0%) underpinned by strong results from the likes of Tencent and Lenovo, while the Shanghai Comp (-0.2%) saw indecisive trade after firm Chinese Property Prices which could spur outflows from stocks into the rampant sector.

In Europe, the Stoxx 600 added 0.5% with all industry groups rising. Nestle SA, which has the highest weighting in the Stoxx 600, advanced 1.2 percent as Chief Executive Officer Paul Bulcke forecast pricing will rebound in the coming months, after the world’s biggest food company reported the slowest first-half sales growth since 2009.

The MSCI Emerging Markets Index rose 0.7 percent, led by technology stocks. Tencent Holdings Ltd. jumped to an all-time high after a 47 percent surge in profit beat analysts’ estimates. Samsung Electronics Co. also climbed to a record. The two stocks have the biggest weightings in the MSCI equity benchmark.

S&P 500 futures were little changed, after shares eked out gains on Wednesday following the release of the Fed minutes. Cisco Systems Inc. fell 1.6 percent in German trading after the biggest maker of equipment that runs the Internet announced plans to cut about 7 percent of its workforce.

In addition to the weekly jobless claims data, investors will focus on earnings from retail giant Wal-Mart for indications of the state of the U.S. economy. Fewer than 30 of the S&P 500’s companies have yet to report.

Market Snapshot

• S&P 500 futures up less than 0.1% to 2180
• Stoxx 600 up 0.5% to 342
• FTSE 100 up 0.2% to 6876
• DAX up 0.6% to 10597
• German 10Yr yield down 1bp to -0.06%
• Italian 10Yr yield down 2bps to 1.1%
• Spanish 10Yr yield down 2bps to 0.95%
• S&P GSCI Index up 0.1% to 365.5
• MSCI Asia Pacific down 0.4% to 139
• Nikkei 225 down 1.6% to 16486
• Hang Seng up 1% to 23023
• Shanghai Composite down 0.2% to 3104
• S&P/ASX 200 down 0.5% to 5508
• US 10-yr yield up less than 1bp to 1.56%
• Dollar Index down 0.23% to 94.5
• WTI Crude futures up 0.3% to $46.94
• Brent Futures down 0.4% to $49.63
• Gold spot down 0.1% to $1,347
• Silver spot up less than 0.1% to $19.70

Top Global News

• Cisco Cuts Workforce by 7% to Speed Transition to Software: CEO Robbins moving company away from traditional hardware. Any savings from job reductions to go toward growth areas
• Nestle Revenue Grows at Weakest Pace Since 2009 on Deflation: KitKat maker increasing prices in U.K., Brazil, Russia. Sales growth needs to accelerate to reach full-year target
• Blackstone Said Nearing $620 Million New York Apartment Purchase: Kips Bay Court on east side of Manhattan has 894 rental units. Deal would follow $5.3 billion Stuyvesant Town purchase
• American Apparel Said to Hire Bank to Explore Sale: Hires Houlihan Lokey to explore sale, Reuters reports, citing unidentified people familiar.
• Redstone Granddaughter Said Pursuing Trial Even If Others Settle: Case in Massachusetts is scheduled to go to trial on Sept. 19. Suit claims media mogul is unduly influenced by daughter Shari
• Retrophin Said to Consider Bid for Raptor Pharmaceutical: Raptor has also attracted interest from other drugmakers. No agreement has been reached, firms could decide against deal
• Widening Fed Consensus on Inflation Overshadows Rate-Hike Debate
• Caesars Suing Apollo to Stop Creditors From Suing Apollo
• Bosch’s VW Diesel Cheating Role Called Key by Car Owners
• American Apparel Said to Hire Bank to Explore Sale: Reuters
• Tronc Said to Respond to Gannett’s Bid by End of the Week: WSJ
• Clinton Foundation Said to Hire FireEye on Suspected Hack: Reuters
• Gawker CEO Denton to Exit After Univision Sale Closes: Politico
• Mondelez to Invest >$100m in China Over 3 Yrs: China Daily

Looking at regional markets, we start as usual in Asia where equities traded mixed following the mild gains seen in the US after dovish FOMC minutes, although Japanese sentiment was dampened on JPY strength and poor trade data. Nikkei 225 (-1.6%) was pressured after USD/JPY fell below 100.00 and July trade figures showed both exports and imports declined by the most since 2009, while ASX 200 (-0.5%) was weighed ON by disappointing earnings. Chinese markets are positive with the Hang Seng (+1.0%) underpinned by strong results from the likes of Tencent and Lenovo, while the Shanghai Comp (-0.2%) saw indecisive trade after firm Chinese Property Prices which could spur outflows from stocks into the rampant sector. 10yr JGBs traded higher amid the lack of risk appetite seen in Japanese equities, whilst today's 5yr JGB auction was also supportive with the bid/cover increasing from prior.

Top Asia News

• China Bailout Fund Said to Sell Bank Stocks as Rally Extends: Selling seen after benchmark index climbs to 7-mo. high
• Hong Kong Stocks Rally to Nine-Month High on Earnings Optimism: Tencent, Lenovo jump after profit beats analyst estimates
• BOJ Cornered as Japanese Banks Running Out of Bonds to Sell: Banks cut almost half of holdings since Kuroda began easing
• China July New Home Prices Rise M/m in Fewer Cities: New home prices, excluding subsidized housing, rises m/m in in 51 out of 70 cities tracked by China’s statistics bureau, vs 55 in June
• Swire Properties Says 2H H.K. Office Demand Likely Subdued: 1H underlying profit HK$3.56b vs HK$3.94b y/y
• Arsenal of Smartphone Apps Seeking Reliable Power Grows in India: Tarang phone app to track electricity transmission projects

In Europe, the upside in oil has seen energy names lead the way higher in terms of European equities, with major indices all trading in modest positive territory (Euro Stoxx: +0.5%). Elsewhere, basic material names are the laggard of the session so far, while on a stock specific basis, earnings continue to dictate play as we come to the back end of earning season, with Vestas Wind Systems and NN Group the top performers after their update, while Boskalis are the worst performer. Fixed income markets have seen a continuation of the post FOMC minutes fallout, with Bunds playing catch up to trade higher this morning amid dissipating expectations of a near term rate hike form the Fed, while the German curve has flattened this morning, also in line with its US counterpart.

Top European News

• Bosch’s VW Diesel Cheating Role Called Key by Car Owners: Supplier accused of participating in ‘decade-long conspiracy’. Car owners’ lawyers expand on allegations in U.S. court filing
• Casino Quietly Buying Back its own Shares: Casino has begun to buy back its own shares, bought back 0.7% of total equity or 1.4% of the free float for EU35m so far, Bernstein says in note
• U.K. Retail Sales Surge as Sunshine Overpowers Brexit Concern: Volumes increased 1.4% on month in July, 5.9% on year. Slide in sterling after Brexit prompted watch, jewelry spree
• Brexit-Bashed Banks Can’t Escape From London’s Canary Wharf: U.K. commercial property market fell into recession in July. Canary Wharf pivots to residential and retail construction
• Argos to Buy U.S. Plants From HeidelbergCement for $660 Million: German company says disposal proceeds ahead of target. Argos to add one plant and eight related terminals in U.S.

In FX, the Bloomberg Dollar Spot Index fell 0.3 percent, approaching a three-month low. It posted a 0.2 percent gain on Wednesday, having been up as much as 0.5 percent ahead of the Fed minutes’ publication. Britain’s pound was the biggest winner against its U.S. counterpart, climbing after a report showed U.K. retail sales jumped more than economists forecast in the month after Britain voted to quit the European Union. Sterling strengthened 0.9 percent to $1.3160. The Aussie climbed 0.4 percent after a report showed Australia’s unemployment rate unexpectedly fell to 5.7 percent in July. The MSCI Emerging Markets Currency Index added 0.2 percent, after falling 0.5 percent on Wednesday. South Africa’s rand was among the biggest gainers, rising 0.4 percent, while Mexico’s peso and Malaysia’s ringgit both appreciated a similar amount.

In commodities, the Bloomberg Commodity Index was set for the most enduring rally in more than two months as the dollar weakened. West Texas Intermediate crude rose for a sixth day, the longest advance in more than a year, as U.S. crude and gasoline stockpiles dropped from the highest seasonal level in at least two decades. Oil added 0.4 percent to $46.96 a barrel after gaining more than 12 percent over the previous five sessions. Brent added as much as 0.4 percent to trade above $50 for the first time in more than a month. Industrial metals also rose, with copper gaining 1.4 percent to $4,839 a metric ton and nickel adding 1.5 percent.

In terms of the day ahead, we’ll get the latest initial jobless claims reading, Philly Fed survey for August and also the Conference Board’s leading index for July. Away from the data and as noted at the top we’re due to hear from the Fed’s Dudley this afternoon (at 3pm BST) and also Williams (at 9pm BST) later this evening. Amazon's bricks and mortar nemesis, Wal-Mart, will release earnings.

* * *

Bulletin Headline Summary From RanSquawk and Bloomberg

• European equities trade modestly higher with energy names leading the way in what has once again been a relatively quiet session
• GBP/USD has been dealt further support by another batch of positive post-referendum data with retail sales exceeding market consensus
• Looking ahead, highlights include ECB Minutes, Philadelphia Fed Manufacturing Index and earnings from Wal-Mart
• Treasuries mostly steady in overnight trading, global equities mixed and commodities rise as USD drops for fifth day in a row.
• For all of their differences, one thing most Federal Reserve officials seem to agree on is that there’s not much risk of inflation running away from them anytime soon, regardless of what they do with interest rates
• U.K. retail sales unexpectedly surged in the month after Britain voted to quit the European Union, as hot weather bolstered sales of clothing and footwear and a drop in the pound encouraged tourists to snap up watches and jewelry
• France’s unemployment rate dropped to 9.9% in the second quarter from 10.2% in the first quarter, its lowest level in almost four years, helping President Francois Hollande fulfill a promise to cut joblessness before the next election
• Japan’s biggest banks are running out of room to sell their government bond holdings, pushing the central bank closer to the limits of its record monetary easing; Etsuro Honda, an adviser to Japanese Prime Minister Abe, tells WSJ in interview he sees “more than a 50% possibility” of the Bank of Japan taking “bold” easing measures next month
• Chinese state-backed funds sale of bank shares may signal confidence among Chinese policy makers that the $6.5 trillion market is growing strong enough to stand on its own
• Steve Eisman made his name and fortune by foreseeing the collapse of subprime mortgage securities. Now he’s betting against a different kind of Wall Street money machine. He thinks hedge fund fees are going to tumble
• JPMorgan Chase, Citigroup and Morgan Stanley are among 16 banks being sued by funds in the U.S. for allegedly manipulating a key Australian interest rate benchmark to generate hundreds of millions of dollars in illicit profits
• Fannie Mae and its cousin, Freddie Mac, are once again headed for trouble. On Jan. 1, 2018, the two government- sponsored enterprises will officially run out of capital under the current terms of their bailout. After that, any losses would be shouldered by taxpayers

US Event Calendar

• 8:30am: Initial Jobless Claims, Aug. 13, est. 265k (prior 266k)
• 8:30am: Philadelphia Fed Business Outlook, Aug., est. 2.0 (prior -2.9)
• 9:45am: Bloomberg Economic Expectations, Aug. (prior 44.5)
• 10am: Leading Economic Indicators, July, est. 0.3% (prior 0.3%)
• 10am: Freddie Mac mortgage rates
• 10am: Fed’s Dudley speaks in New York
• 10:30am: EIA natural-gas storage change
• 4pm: Fed’s Williams speaks in Anchorage

DB's Jim Reid concludes the overnight wrap

Markets have spent the last 48 hours up and down like a BMX rider as they try to come to terms with the Fed's latest thinking after a relatively hawkish set of comments from the NY Fed’s Dudley on Tuesday was then followed up yesterday by FOMC minutes which suggested a much more divided committee. The reaction in markets suggested that the minutes were on the dovish side, certainly relative to what we’d heard from Dudley although it still felt like investors were left fairly confused. The question is probably what is the more up to date view and should we place higher value on Dudley’s comments as a barometer of the overall leaning at the Fed? Dudley is due to speak again this afternoon on regional economic conditions at a press briefing however Q&A is expected after so that will be interesting to watch. A reminder than next week on Friday we’ll also hear from Fed Chair Yellen at Jackson Hole.

In terms of the minutes the most notable takeaway was the mention that ‘members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labour market and economic activity’. This was followed with ‘a couple of members preferred also to wait for more evidence that inflation would rise to 2% on a sustained basis’ and also that ‘some other members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation’.

The text also revealed that ‘several suggested that the committee would have ample time to react if inflation rose more quickly’ while others were of the view that ‘labour market conditions were at or close to those consistent with maximum employment and expected that the recent progress in reaching the Committee’s inflation objective would continue, even with further steps to gradually remove monetary policy accommodation’. The minutes also suggested that the committee was encouraged by the post-Brexit reaction in markets. The text showed that ‘participants generally agreed that the prompt recovery of financial markets following the Brexit vote and the pickup in job gains in June had alleviated two key uncertainties about the outlook’.

Treasuries were bid up following the minutes. 10y yields ended the day 2.5bps lower at 1.550% although remain a couple of basis points above where they were immediately prior to the Dudley comments. 2y yields have gone from 0.694% pre-Dudley to a high of 0.767% and are now back down 0.726%. The USD was pretty choppy following the minutes but finished little changed. US equities had traded in the red for much of the session (quarterly results from Target and Lowes in the retail sector weighing) before firming slightly following the minutes. Indeed having been down as much -0.45% intraday the S&P 500 closed +0.12% although is still a shade below pre-Dudley levels. Meanwhile September rate hike expectations are unchanged at 22% (18% pre-Dudley) while December expectations continue to be a coin flip (49% from 51% on Tuesday and 45% on Monday)

This morning in Asia has seen another relatively mixed start in markets. The Hang Seng (+1.60%) has rallied on the back of a number of earnings reports, while the Shanghai Comp (+0.41%) and Kospi (+0.48%) are up more modestly. The Nikkei (-0.89%) is in the red with the Yen breaking through 100 again early this morning (its hovering around that level as we go to print). The ASX (-0.57%) is also lower.
There’s also been a bit of data released overnight. In Japan exports weakened to -14.0% yoy (vs. -13.7% expected) in July from -7.4% the month prior, while imports (-24.7% yoy vs. -20.0% expected; -18.8% previously) were also lower despite the strengthening Yen. The decline in exports is now the most since October 2009. Meanwhile in China the latest property prices data for July showed that prices increased in 51 cities last month (excluding government-subsidized housing) from 55 in June. This is out of 70 cities signalling a slight cooling off in property prices gains. Lastly a decline in the unemployment rate in Australia following the latest data this morning has seen the Aussie Dollar rise half a percent.

Away from the Fed yesterday, the only real economic data to note came again from the UK where the latest employment numbers were released, some of which covered the post-Brexit period. In the three months to June 172k jobs were added which was a bit more than expected (150k expected). The ILO unemployment rate held steady in the same period at 4.9% as expected while average weekly earnings including bonuses (+2.4% yoy) and excluding bonuses (+2.3% yoy) both rose one-tenth which was in-line. Meanwhile, in terms of the July data jobless claims actually declined unexpectedly (-8.6k vs. +9.0k expected) – this was also the first monthly decline in claims since February although it’s worth noting that the data tends to be a bit volatile.

Sterling was little changed by the end of play and Gilt yields were lower (10y Gilts -2.2bps) which was in line with the wider market generally. The FTSE 100 was -0.50% although this outperformed most other European bourses which were down 1-1.5% generally, seemingly still reacting to Dudley’s more hawkish comments the day prior.

Meanwhile, Portugal has been focus for sovereign bond markets over the past couple of days. Indeed 10y Portugal yields had been up as much as 31bps from Tuesday’s intraday lows at one stage over concerns that Portugal may lose its BBB rating from rating agency DBRS – the only rating agency to still rate Portugal investment grade and so making Portugal still eligible for ECB bond purchases. Yesterday late afternoon however the Chief Economist at DBRS said that the agency is ‘comfortable’ with its rating for Portugal which helped to alleviate some concerns for now. Portugal’s bonds rallied 8bps or into the close following those comments.

In terms of the day ahead, shortly after we go to print this morning we’ll get the Q2 employment numbers out of France. It’s all eyes on the UK after that where the July retail sales data is set to be released and should be another important post-Brexit indicator. Current market consensus is for +0.3% mom excluding fuel and +0.1% mom including fuel. Also out this morning will be the final revisions to July CPI for the Euro area along with the minutes from the last ECB Council Meeting. Across the pond this afternoon we’ll get the latest initial jobless claims reading, Philly Fed survey for August and also the Conference Board’s leading index for July. Away from the data and as noted at the top we’re due to hear from the Fed’s Dudley this afternoon (at 3pm BST) and also Williams (at 9pm BST) later this evening.