It was a relatively subdued trading session, with markets treading water amid modest volumes awaiting news of action in Syria, until just after 6am ET when as we reported previously, Trump reversed on his Wednesday morning tweet, and in his latest tweetstorm, said that he "Never said when an attack on Syria would take place. Could be very soon or not so soon at all!"

Well, that certainly is one way to try and regain the "element of surprise", even if it makes the whole fiasco even worse.

While implicitly Trump's tweet makes the market confusion about Syria even worse, as instead of the original timetable of "72 hours before a strike", this leaves the now-certain Syrian strike as open-ended, delaying the risk of a global selloff once Trump does launch, so far world stock markets, and US index futures, are loving what they see as a sign of de-escalation, and following Trump's tweet, stocks in Europe and the UK, along with U.S. stock futures have jumped...

... after Trump's tweet:

• Stoxx Europe 600 Index gains as much as 0.3%
• In London, the FTSE 100 gains as much as to 0.1%
• E-Mini futures on S&P and Dow Jones up 0.4%

That said, the situation in Syria is still problematic, and overnight we got reports that the US-led coalition was asking all Middle East flight companies to change itinerary for next 48 hours amid possible strike, according to Kurdistan24. Additionally, French President Macron says chemical weapons were used in Syria and that a reaction is coming in days.  All Syria military bases are said to be on high alert as a US attack is expected, according to sources.

Trump's Tweet was more than sufficient to make markets forget that, as China explained overnight, the reason for the torrid Tuesday rally was - as we said - wrong after Beijing warned that Xi speech wasn't a concession to US and added it was ready to hit back at any escalation. Of course, that was Tuesday's fake news, and who cares if it catalyzed a huge surge in the stock market.

Meanwhile, European stocks got an extra lift earlier in the session after the Euro weakened to session lows after industrial output unexpectedly declined for a third consecutive month. In other news, bad news is good again, as the world's "global coordinated recovery and reflation" phase slowly but surely ends. European equities began the day trading slightly lower with the risk-on sentiment seen in yesterday’s trade not being echoed early on, as market sentiment was largely being guided by increased tensions in Syria amid potentially imminent - or not so imminent now - military action by the US. European equity sector performance has largely been driven by company-specific news with Deutsche Telekom (+4%) driving the telecoms sector higher (+0.7%) as T-Mobile, a company in which they own 64% of shares, has restarted deal talks with Sprint.

In Asia, Australia's ASX 200 (-0.4%) failed to sustain mild opening gains as softer Australian consumer sentiment data and weaker than expected Chinese inflation figures clouded the upside seen in commodity-related sectors. Nikkei 225 (-0.5%) was also lackluster with J Front the worst off among the retailers on expectations of weaker profits this year, while SoftBank outperformed on M&A hopes after reports its unit Sprint and T-Mobile renewed merger talks. The Hang Seng (+0.5%) and Shanghai Comp. (+0.5%) were initially choppy as participants digested the miss on Chinese CPI and PPI data, although stocks gradually found some comfort from efforts by PBoC Governor Yi Gang to build upon the momentum from President Xi at the Boao forum in which the PBoC Governor talked about opening up and announced to increase stock connect quotas.

Meanwhile, geopolitical fears are not only stressing stocks but oil too, although rising to the highest price in over 3 years, West Texas crude turned modestly lower overnight following recent big gains. As Bloomberg notes, oil has been advancing on growing concerns that the U.S. will take military action in the Middle East, and after Saudi Arabia intercepted a ballistic missile and shot down drones.

While that pushed down most of the main stock benchmarks in the region, it gave a break to oil-rich Russia, where the ruble bounced back from the lowest level in 15 months.

Elsewhere, markets were additionally pressured by Wednesday's Fed hawkish minutes which showed officials leaned toward a slightly faster pace of policy tightening at their March meeting, even as they saw clear “downside risks” for the biggest economy from retaliatory trade duties, in other words, all Trump needs to avoid more rate hikes is escalating the trade war with China to nuclear.

Overnight, RBA Governor Lowe said his board does not see a strong case for raising interest rates in the near term; more likely next move in cash rate will be up rather than down. While some central banks are hiking rates, Australian circumstances are different. Serious escalation of trade tensions would risk health of the economy. Meanwhile, in Japan, BoJ Governor Kuroda says BoJ will continue powerful QE to meet inflation target, adds that there are expectations for consumer prices to keep rising.

Today's data include jobless claims and earnings from BlackRock, Delta Air Lines, and Rite Aid. The U.S. won’t tolerate Russian aggression anymore, Secretary of State nominee Mike Pompeo will say at his confirmation hearing Thursday, according to prepared remarks. He’ll make it a "personal priority" to work with allies to see if it’s possible to fix the Iran nuclear deal.

Market Snapshot

• S&P 500 futures up 0.4% to 2,656.00
• STOXX Europe 600 up 0.1% to 376.5
• MXAP down 0.4% to 173.84
• MXAPJ down 0.3% to 570.91
• Nikkei down 0.1% to 21,660.28
• Topix down 0.4% to 1,718.52
• Hang Seng Index down 0.2% to 30,831.28
• Shanghai Composite down 0.9% to 3,180.16
• Sensex up 0.5% to 34,123.36
• Australia S&P/ASX 200 down 0.2% to 5,815.53
• Kospi down 0.06% to 2,442.71
• German 10Y yield fell 0.2 bps to 0.497%
• Euro unchanged at $1.2367
• Italian 10Y yield rose 0.7 bps to 1.548%
• Spanish 10Y yield fell 0.4 bps to 1.268%
• Brent futures down 0.1% to $71.99/bbl
• Gold spot down 0.5% to $1,346.01
• U.S. Dollar Index up 0.2% to 89.77

Top Overnight News

• Congressional Republicans moved to head off any attempt by President Trump to fire special counsel Robert Mueller as the president continued to attack the Russia investigation and the Justice Department.
• China will “unquestionably” retaliate if the U.S. further escalates trade tension, and authorities have prepared a detailed, comprehensive counter-punch plan
• Federal Reserve officials leaned toward a slightly faster pace of policy tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, according to minutes of the gathering released Wednesday
• Germany is leading a drive within the European Central Bank’s oversight arm for tough action this year to deal with nearly $1 trillion of bad loans on banks’ books, according to people with knowledge of the discussions
• President Donald Trump is still weighing options for U.S. military action against Syria as Western powers rallied against Syrian President Bashar al- Assad over an apparent chemical weapons attack near Damascus
• Theresa May’s officials could be lining up to keep the U.K. in the European customs union after Brexit, according to a new analysis that chimes with the views of parts of the British government
• Saudi Arabia said it intercepted a ballistic missile over Riyadh and shot down two drones in another part of the country on Wednesday

Asian equity markets traded mixed as sentiment settled down from the bullishness seen from President Xi Jinping’s conciliatory tone on Tuesday which resulted to a solid performance on Wall St, while attention turned to the geopolitical climate with a possible announcement on Syria said to be imminent. ASX 200 (-0.4%) failed to sustain mild opening gains as softer Australian consumer sentiment data and weaker than expected Chinese inflation figures clouded the upside seen in commodity-related sectors. Nikkei 225 (-0.5%) was also lacklustre with J Front the worst off amongst the retailers on expectations of weaker profits this year, while SoftBank outperformed on M&A hopes after reports its unit Sprint and T-Mobile renewed merger talks. Hang Seng (+0.5%) and Shanghai Comp. (+0.5%) were initially choppy as participants digested the miss on Chinese CPI and PPI data, although stocks gradually found some comfort from efforts by PBoC Governor Yi Gang to build upon the momentum from President Xi at the Boao forum in which the PBoC Governor talked about opening up and announced to increase stock connect quotas. Finally, 10yr JGBs were flat as prices lacked direction amid an indecisive risk tone in the region, while the BoJ also kept the amounts of its Rinban announcement unchanged at just over JPY 1tln of JGBs in 1yr-10yr maturities.

Top Asian News

• IMF Aims to Nudge Xi’s Silk Road Plan Away From Spending Splurge
• Hong Kong Dollar Touches Weak End of Band, First Time Since 2005
• SoftBank in $25-Billion Plan to Reshape World Soccer, FT Reports
• IHH Said to Propose Up to $1.3 Billion Fortis Bid to Top TPG

European Equities began the day trading slightly lower (Stoxx 600 -0.2%) with the risk-on sentiment seen in yesterday’s trade not being echoed early on. This comes to fruition despite the revelations from Chinese president Xi mentioning a preference to implement auto tariff cuts as soon as possible (this relating to a possible reduction on import taxes on autos by half from 25% currently). Market sentiment is largely being guided by increased tensions in Syria amid potentially imminent military action by the US. This follows on from overnight news of increased air traffic over Syrian airspace and condemnation from the international community. EU equity sector performance has largely been driven by company-specific news with Deutsche Telekom (+4%) driving the telecoms sector higher (+0.7%) as T-Mobile, a company in which they own 64% of shares, has restarted deal talks with Sprint. Elsewhere, Tesco are seen higher (+6.2%) amid encouraging earnings, whilst Hammerson shares are seen lower (-1.9%) post the rejection of a revised proposal from Klepierre for GBP 3.65/share and finally, CHR Hansen also lag their peers (-4%) amid a miss on earnings.

Top European News

• Core Inflation Shows Riksbank Will Have a Hard Time Tightening
• Euro-Area Output Slump Adds to Concerns Over Economic Prospects
• Avast’s $1 Billion Listing to Be One of U.K.’s Largest Tech IPOs
• Sulzer Rebounds as Vekselberg’s Stake Cut Eases U.S. Sanctions

In currencies, remains narrowly mixed against G10 peers, but the Index looks prone to another downturn and test of near-term chart support ahead of 89.000, with the late March low around 89.250 an obvious target. Optimism  surrounding US-China trade negotiations have been somewhat neutralised or even negated by the Syrian situation. However, the Dollar could receive a reprieve from upcoming headline inflation data and or FOMC minutes. Several factors appear to have lifted GBP ahead of data with market observers still noting the bullish April seasonal element (even though the weather is still far from favourable), and of course Tuesday’s promptings from BoE hawk McCafferty. Reports suggesting an olive branch offered by chief EU Brexit negotiator Barnier may also be impacting as Cable climbed above 1.4200 and tested the next tech resistance zone 1.4215-25 (above the 10 DMA). Note, contacts reported selling in EUR/GBP from 0.8710 down to 0.8703 in the run up to the 9.30BST releases but in the event buyers were thwarted by weak output numbers vs an encouraging smaller trade shortfall. Renowned safe-havens have diverged yet again, as USD/JPY continues to hug 107.00 amidst option expiry interest at the strike, but with a more offered tone on the aforementioned geopolitical jitters. Conversely, USD/CHF is back up near 0.9600 vs circa 0.9550 at one stage, while EUR/CHF has rallied to fresh post-SNB floor removal highs around 1.1880, with M&A related flows perhaps impacting alongside more official activity, according to others. EUR is edging more gains towards 1.2400, but hampered by offers ahead of the next big figure and also wary of decent expiries between 1.2345-60 (1.8bn). ECB minutes and speeches may provide more independent direction after hawkish comments from Nowotny on Tuesday were confirmed as personal rather than a collective policy view

In commodities, WTI and Brent crude futures trade relatively flat following yesterday’s circa 3.7% gains. Downside was initially seen in the wake of last night’s unexpected build in the API inventories (+1.758mln vs. Exp. -0.200mln) with comments from the Iranian oil minster stating that USD 60/bbl is a good price for oil given current conditions with USD 70/bbl too high a level. Note, the comments appear to be at odds with reports yesterday suggesting that Saudi are to seek an oil price of around USD 80/bbl. However, losses were short-lived with traders mindful of any geopolitical developments with US military officials saying that the US is ready to attack Syria upon orders from President Trump which could come at any time. In metals markets, spot gold has benefitted from the modest risk aversion seen in markets thus far with the slightly softer USD also giving prices a helping hand. Elsewhere, copper was initially firmer overnight alongside early gains in Chinese metals amid restocking demand and expectations of increased construction activity in the upcoming month before staging a retreat. Finally, iron ore prices were seen lower overnight amid concerns over steel margins, whilst aluminium is once again seen higher in London trade as the fallout from Russian sanctions continues to guide price action.

Looking at the day ahead, France's March CPI and the February industrial production print for the Euro area are due. The BoE's credit conditions and bank liabilities survey will also be out. In the US, data includes the latest weekly initial jobless claims print, and March import price index reading. In the evening the Bundesbank's Weidmann and Fed's Kashkari are due to speak at separate events. The ECB's Coeure is also due to speak in Paris.

US event calendar

• 8:30am: Initial Jobless Claims, est. 230,000, prior 242,000; Continuing Claims, est. 1.84m, prior 1.81m
• 8:30am: Import Price Index MoM, est. 0.1%, prior 0.4%; Export Price Index MoM, est. 0.15%, prior 0.2%
• 9:45am: Bloomberg Consumer Comfort, prior 57.2

DB's Jim Reid concludes the overnight wrap

As we await the almost inevitable response from the US and others in the West to the Syrian situation, markets are moving from the relief that the trade war rhetoric has stepped back for now to a realization that the Middle East rhetoric is stepping up. Mr. Trump fired off two somewhat conflicting tweets aimed at Russia yesterday. The first very provocative, the second more conciliatory and quite profound! Firstly he said “Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia because they will be coming, nice and new and smart. You shouldn’t be partners with a gas killing animal who kills his people and enjoys it”. Secondly, “Our relationship with Russia is worse now than it has ever been, and that includes the Cold War. There is no reason for this. Russia needs us to help with their economy, something that would be very easy to do, and we need all nations to work together”.

Anyway, the short-term geopolitical fear has been the dominant theme over the last 24 hours, overshadowing an in-line US CPI print and a slightly hawkish set of Fed minutes. The risk-off tone saw the Stoxx 600 fall for the first time in three days (-0.59%) while losses in the S&P accelerated during the day following the slightly hawkish FOMC minutes before eventually closing at -0.55%. Safe haven assets were in vogue with gold up +1.03%, bonds firming (UST 10y yields -2bp; Bunds -1.6bp), while WTI oil jumped to the highest in c3 years (+2.0% to $66.82/bbl). The latter partly helped by news that Yemen rebels have fired a ballistic missile at Saudi Arabia’s capital before being intercepted.

Back to Syria, sources told Bloomberg that President Trump is still weighing options while White House spokeswoman Sanders noted “…we have a number of options and all those options are still on the table” and when asked whether military actions were possible, she said “final decisions haven’t been made yet on that front”. In the UK, the Daily Telegraph has cited unnamed sources that PM May has ordered submarines to move within missile range of Syria while the BBC reported earlier that the PM is ready to join military actions in Syria without seeking parliamentary consent first.

Moving onto the FOMC minutes now. They indicated that “all participants agreed that the outlook for the economy  beyond the current quarter had strengthened in recent months” and that “all participants expected inflation on a 12-month basis to move up in coming months”, which should not be too surprising given prior commentaries, but then the minutes also added that “a number of participants indicated….the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected”.

Notably, the minutes also indicated that participants discussed the possibility of revising the statement’s language “at some point” to acknowledge that monetary policy “would gradually move from an accommodative stance to being a neutral or restraining factor for economic activity”. Elsewhere on trade, “participants did not see the steel tariffs, by themselves….as likely to have a significant effect on the national economic outlook….but a strong majority of participants viewed the prospects of retaliatory trade actions by other countries as a downside risk”.

This morning in Asia, markets are mixed with the Kospi (+0.22%) slightly up while the Nikkei (-0.20%), Hang Seng (-0.23%) and Shanghai Comp. (-0.60%) are down as we type. In Japan, BOJ Governor Kuroda noted:”…we expect inflation to accelerate as a trend and head towards 2%” while the BOJ will maintain its stimulus program “until needed to stably and sustainably achieve” its target.

Now recapping other markets performance from yesterday. US bourses weakened (Dow -0.90%; Nasdaq -0.36%) and within the S&P, only the energy and real estate sectors were up while losses were led by telcos, financials, and healthcare stocks. In tech, the Congressional hearings involving Facebook’s CEO seemed to be gone relatively well with little consensus on potential regulations.

Facebook’s shares rose +0.78% yesterday while the Nasdaq 100 index dipped -0.49%. Across Europe, markets were also modestly lower with the DAX (-0.83%) and FTSE (-0.13%) both down while Russia’s MOEX rose for the second consecutive day (+0.85%). The VIX traded within a c2pt range before closing -1.1% lower to 20.24.

Over in government bonds, the curve has flattened further with the 2s10s and 5s30s down -2bp and -1.4bp respectively and back near its 10 year low. Elsewhere, Italian BTPs slightly underperformed as Bloomberg reported the Italian President may give a preliminary mandate to League Party leader Salvini to form the next government if no progress in coalition talks is made by early next week (10y yields +0.7bp). In FX, the US dollar index weakened for the fourth consecutive day (-0.02%) while the Euro and Sterling were marginally higher. In commodities, LME aluminum prices rose for the sixth consecutive day and are now at the highest since early January (+13.8% on a cumulative basis), in part due to the potential disruption of Russian supply.

Turning now to Draghi’s latest comments on trade and inflation. He reiterated that the direct impact from announced protectionist measures are not big, but “we’ve be especially mindful of another more subtle channel which can affect the economy (ie: the potential hit to confidence)”, which “can be very important in the coming months”. Elsewhere, he has broadly stuck to script and is confident wages will pick up and inflation will eventually move towards the ECB goal as the economy improves. Finally, the ECB’s Hansson noted the ECB should move ahead with policy normalization “maybe with a little bit more courage, but I think that all these changes need to be gradual”.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the March core CPI was in line at 0.2% mom. As last year’s big decline in mobile services prices dropped out of the calculation, the annual core CPI rose to a 13 month high of 2.1% yoy - also in line with expectations. Notably, on a 3 and 6 month annualized basis, inflation momentum is stronger at 2.9% yoy and 2.6% yoy respectively. Elsewhere, the NY Fed’s underlying inflation gauge was steady in March with the prices index up 2.2% yoy while the Cleveland Fed reported a 2.5% yoy rise in the weighted median. Our US economists viewed this month’s CPI as consistent with their forecast that core CPI will rise to 2.3% yoy this year. Finally, the March monthly budget deficit was wider than expected at -$209bln (vs. -$186bln expected).

The UK’s February IP was below market at 0.1% mom (vs. 0.4% expected), leading to annual growth of 2.2% yoy, while manufacturing output fell for the first time in 11 months (-0.2% mom vs. 0.2% expected). The February trade deficit was narrower than expected at -£1.0bln (vs. -£2.6bln) as growth in exports outpaced imports. Italy’s February retail sales was slightly above market at 0.4% mom (vs. 0.3%) while the Bank of France’s March industrial sentiment index was 103 (vs. 104 expected).

Looking at the day ahead, France's March CPI and the February industrial production print for the Euro area are due. The BoE's credit conditions and bank liabilities survey will also be out. In the US, data includes the latest weekly initial jobless claims print, and March import price index reading. In the evening the Bundesbank's Weidmann and Fed's Kashkari are due to speak at separate events. The ECB's Coeure is also due to speak in Paris.