S&P futures, European stocks and bond yields all fell in early trade alongside oil and the euro after the latest Fed minutes expressed concern over weak U.S. inflation, while Asian equities rose overnight ahead of WalMart earnings and the latest ECB minutes. Gold rose as high as $1,290 before fading most gains as the USD/JPY rebounded. Fund futures are now pricing in about a 40% chance the Fed will raise rates by December, compared to 50% before the Fed's minutes.

Last week's market turmoil and resultant near record jump in volatility in the wake of heightened tensions between the U.S. and North Korea has continued to ease, bringing down gauges of equity and bond volatility and repairing most of the damage done to stock markets, in fact as Bank of America showed, the retracement in the VIX on Monday was among the fastest on record.

But political angst isn’t over; investors continue to watch the political train-wreck in Washington where President Trump disbanded two high-profile business advisory councils amid the fallout from his response to the weekend violence in Virginia.

"Trump dissolving his major business groups makes the investment community even more pessimistic because this sets the stage for even more failure for him," Naeem Aslam, chief market analyst at Think Markets in London, wrote in a note.

Lost in the political noise was the July FOMC minutes, where the most notable takeaway was the reference to “most participants expected inflation to pick up over the next couple of years….and to stabilize around the 2% objective over the medium term”. However, many participants “saw some likelihood that inflation might remain below 2% for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.” The debate on inflation echoed recent comments made public by various Fed presidents, while some members noted the “committee could afford to be patient….in deciding when to increase the rates further and argued against additional adjustments until incoming information confirmed that the recent low inflation were not likely to persist”. However, those comments were balanced by the observation that “…some other participants were more worried about risks arising from a labour market that had already reached full employment and was projected to tighten further from the easing in financial conditions”. Elsewhere, on the balance sheet unwind topic, “several” members favoured an announcement in the July meeting, but most preferred to defer that decision to the next meeting in September.

With concerns about weak inflation in the air, the Stoxx 600 Index was down 0.1%, with declines in banking shares offsetting advances in healthcare stocks. Germany's DAX, France's CAC 40 and the UK's FTSE 100 all fell 0.1%. Yesterday's Reuters' trial balloon, according to which Mario Draghi would not say anything of note next week during the Jackson Hole conference, weakened the euro, which traded as low at 1.1700 this morning and gave support to fixed income assets with European government bond yields dropping, and the 10Y Bund yield down nearly 2 bps to 0.42%, down from Wednesday's high of 0.47%. Most other euro zone yields fell 1-2 basis points.

In currencies, the euro slid before the release of the minutes from the last ECB meeting. Most Asian currencies rose overnight, with the Korean won up 0.3% after tensions over North Korea continued to ease. Overnight, the yen gained for a second day as the dollar decline on declining US rate hike expectations. The Australian dollar rose a second day against the U.S. dollar to reach the highest in nearly 2 weeks after July employment data beat estimates while prior month data was revised higher and iron ore prices erase week-to-date losses. In Europe, the pound rose against the euro after strong U.K. retail sales data.

In commodities, London copper, aluminum and zinc hit multi-year highs on expectation China's reform of its metals industry will curb supply against a backdrop of robust demand. Gold and tin were among the best performing metals, and zinc traded near a 10-year high.Oil prices edged higher after new data showed U.S. crude stocks have fallen by 13 percent from a peak in March. Brent crude futures were at $50.36 per barrel, up 0.2 percent from their last close.

Today's data include jobless claims, Philadelphia Fed Business Outlook and industrial production. Wal-Mart, Gap, Ross Stores and Madison Square Garden are among companies reporting earnings.

Bulletin Headline Summary from RanSquawk

• Choppy GBP reaction to UK retail sales
• Financial leading the declines in Europe post last night's FOMC minutes
• Looking ahead, highlights include ECB minutes, US Philly Fed and jobless claims

Market Snapshot

• S&P 500 futures down 0.1% to 2,465
• STOXX Europe 600 down 0.1% to 378.62
• MSCI Asia up 0.5% to 159.86
• MSCI Asia ex Japan up 0.5% to 526.58
• Nikkei down 0.1% to 19,702.63
• Topix down 0.07% to 1,614.82
• Hang Seng Index down 0.2% to 27,344.22
• Shanghai Composite up 0.7% to 3,268.43
• Sensex up 0.4% to 31,888.42
• Australia S&P/ASX 200 down 0.1% to 5,779.21
• Kospi up 0.6% to 2,361.67
• German 10Y yield fell 1.0 bps to 0.435%
• Euro down 0.3% to $1.1738
• Italian 10Y yield unchanged at 1.755%
• Spanish 10Y yield fell 1.0 bps to 1.454%
• Brent futures down 0.2% to $50.17/bbl
• Gold spot up 0.3% to $1,287.08
• U.S. Dollar Index up 0.2% to 93.70

Top Overnight News

• Alibaba, Wal-Mart Report Earnings; ECB Minutes Watched for Taper Clues
• The U.S.’s top general declined to comment on South Korean leader Moon Jae-in’s assertion that he needed to sign off on a war against North Korea, saying President Donald Trump had the final say on a unilateral military strike
• Trump’s pro-business image tarnished as CEOs abandon president
• China believes the Korean Peninsula issue can only be solved via dialogue and negotiations, Fan Changlong, Vice Chairman of Central Military Commission said
• Saudi Arabia shipped the least oil in almost three years in June, just as domestic stockpiles are dwindling.
• U.K. retail sales rose 0.3% m/m in July, exceeding the median estimate of +0.2%, driven by the biggest jump in purchases of food in almost two years
• President Donald Trump waded into a longstanding scrap between online retailers and their brick- and-mortar rivals with a Twitter posting Wednesday about Amazon.com Inc. and taxes
• Fed officials are looking under the hood of their most basic inflation models and starting to ask if something is wrong
• Investors are about to get their first look at Bill Ackman’s plans for improving the performance of Automatic Data Processing Inc., which the activist investor contends is losing ground to smaller rivals
• Credit Suisse, JPMorgan and Citigroup have struck the first deals on a new structured debt platform amid a boom in repackaged note transactions
• Most industrial metals eased back after a rally that took zinc to the highest level in almost 10 years on signs of supply curbs and faster economic growth around the world
• U.K. consumers are flagging, stripping the economy of its most consistent and important support over the past two years.
• Air Berlin Plc’s insolvency could open the way for Deutsche Lufthansa AG to add new hubs for inter-continental flights while allowing short-haul discount specialist EasyJet Plc to boost its presence in the German capital
• South Korea’s Moon says will be no war again on the peninsula
• Japan July trade 418.8b yen vs 327.1b est; exports 13.4% vs 13.2% est
• Australia July jobs 27.9k vs 20.0k est; unempl rate 5.6% vs 5.6% est
• New Zealand Aug ANZ consumer confidence 126.2 vs 125.4; +0.6% m/m
• Elliott Is Said to Buy Debt in Move to Block Berkshire Oncor Bid
• For Bull Market in U.S. Stocks, You’re Only as Young as You Feel
• Credit Suisse’s London Sublease to WeWork Said to Be Blocked
• Trump’s Pro-Business Image Tarnished as CEOs Abandon President
• Republican Leaders Duck for Cover After Trump’s Race Remarks

Asia equity markets traded indecisive following a relatively tepid close in the US where basic materials outperformed as zinc rose above USD 3000/ton to a decade high, while energy and financials declined on oil weakness and after US yields were pressured post¬FOMC minutes. ASX 200 (-0.10%) was choppy with miners underpinned by strength across the metals complex and as a slew of earnings releases also drove individual stocks, while Nikkei 225 (-0.14%)was subdued by a firmer currency. Shanghai Comp (+0.68%) and Hang Seng (-0.24%) were both initially higher, although the latter then pared gains on profit taking and amid an increase in money market rates. 10yr JGBs traded flat amid an indecisive risk tone in Japan, while the 5yr auction also failed to spur price action as the results were mixed. PBoC injected CNY 60bln in 7-day reverse repos and CNY 40bln in 14-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.6709 (Prey. 6.6779). Japanese Trade Balance (Jul) JPY 418.8bln vs. Exp. JPY 327.1b1n (Prey. JPY 439.9b1n); Exports (Jul) Y/Y 13.4% vs. Exp. 13.2% (Prey. 9.7%);Imports (Jul) Y/Y 16.3% vs. Exp. 17.0% (Prey. 15.5%)

Top Asian News

• Economic Growth in the Philippines Exceeds 6% for Eighth Quarter
• Casino Giants Look for Clarity as Japan Begins Public Debate
• Series of Gaffes Taint Unicom’s $11.7 Billion Sale Announcement
• Gemadept Seeks $125M From Stake Sales in 2 Units: CEO Minh
• Tokyo Stocks Slip as Yen Strengthens After Dovish Fed Minutes
• Taiwan Blackout Seen Pressuring Tsai to Reconsider Energy Policy
• BOJ Seen Trimming Bond Purchases Further If Yields Extend Slide
• China Kickstarts Privatization Push With Unicom Share Sale
• Tencent’s Appetite for AI Sends Sector Stocks Surging in China

European equities trade modestly lower (Eurostoxx 50 -0.2%) with financials underperforming in the wake of yesterday's FOMC minutes which received a somewhat dovish response given concerns at the Fed regarding inflation. To the upside, material names outperform in response to the gains seen overnight in the metals complex with Dalian iron ore prices up over 6% during Asia-Pac trade. In fixed income markets, prices were originally supported by the softness seen in European equities and the fallout of yesterday's FOMC minutes with the 10yr Bund approaching 164.00 to the upside. Looking ahead, investors will likely turn towards today's ECB minutes release for any views on concerns surrounding scarcity of core paper and any potential biases the central bank could have in purchasing paper from across the continent.

Top European News

• U.K. Said to Plan Visa-Free Travel for Europeans After Brexit
• U.K. July Retail Sales Rise, Led by Surge in Demand for Food
• Nets CEO Opens Door to European Expansion Amid Deals Speculation
• Axa, NN Are Said to Near Deal for Billionaire March’s Encampus
• Seadrill Shields Seadrill Partners From Impact of Chapter 11
• Novo’s Diabetes Drug Bests Lilly’s in Aiding on Weight Loss
• Vestas Maintains Outlook, Begins $706 Million Share Buy Back
• Lufthansa Swoop for Air Berlin Would Add Lower-Cost U.S. Routes

In currencies, sterling was once again a key focus for FX markets amid further tier 1 data from the region, this time with retail sales on the data slate. Upon the release, GBP/USD saw a spike higher after 3/4 headline metrics exceeded expectations before prices were dragged lower to pre-announced levels with all 4 components revised lower. USD has regained some ground against its major counterparts following the losses seen last night in the wake of the FOMC minutes. USD has particularly out-muscled EUR with participants looking for further insight via the ECB minutes into the current train of thought at the central bank given yesterday's source reports. AUD has regained some ground amid firmer metals prices, subsequently shrugging off the domestic jobs data overnight.

In commodities, the metals complex traded higher overnight with gold prices extending on gains seen following the FOMC minutes. Elsewhere, Copper traded higher alongside broad strength across basic materials with Dalian iron ore prices up nearly 6%, while WTI traded quiet overnight and failed to make any significant recovery from yesterday's post-DoE declines. Saudi Arabia June output rose 190K bpd M/M to
10.07mln bpd, while Saudi Arabia June crude exports fell 40K bpd M/M to 6.889mn bpd, according to JODI data. Libya's NOC said that the Sharara oil field is "working normally and the situation is currently stable" following recent security breaches.

Looking at the day ahead, we’ve got a fair bit of data due today including July IP (0.3% mom expected), capacity utilisation, conference board US leading index (0.3% expected), the Philadelphia Fed business outlook survey (19 expected), initial jobless claims and continuing claims stats. Away from the data, the ECB will publish the account of its July policy meeting and the Fed’ Kaplan will also speak. Further, Wal-Mart will report its results today.

US Event Calendar

• 8:30am: Initial Jobless Claims, est. 240,000, prior 244,000; Continuing Claims, est. 1.96m, prior 1.95m
• 8:30am: Philadelphia Fed Business Outlook, est. 18, prior 19.5
• 9:15am: Industrial Production MoM, est. 0.3%, prior 0.4%; Capacity Utilization, est. 76.7%, prior 76.6%
• 9:45am: Bloomberg Consumer Comfort, prior 51.4, Bloomberg Economic Expectations, prior 47
• 10am: Leading Index, est. 0.3%, prior 0.6%
• 1pm: Fed’s Kaplan Speaks in Lubbock, Texas

DB's Jim Reid - or in this case not - concludes the overnight wrap

Don't panic. Jim's absence today isn't because his twins have arrived early. Although we're not totally sure which of the following shocks he's getting over this morning. The fact that it's 25 years today since his A-Level results, his 4th wedding anniversary today or being told last night by the consultant that the twins will be coming a little earlier than planned and to expect to be called in anytime in the next 10 days. Luckily we haven’t had to alert him to any super important market related news this morning although things did get a bit more interesting towards the end of the US session last night. Initially the news that one of President Trump’s business advisory groups was disbanding in reaction to events in Virginia over the weekend saw risk assets initially pare some gains. Then after that we got the release of the FOMC minutes which showed a relatively healthy debate amongst policy makers about inflation and which the market appeared to take slightly dovishly given the decent rally for Treasuries into the close. We’ll jump into both of events those shortly.

Prior to that the lack of any more updates or news on the North Korea/US front seemed to be helping keep things fairly calm overall and in fact after all the excitement of last week the S&P 500 and Stoxx 600 have clawed back nearly three-quarters of last week’s moves lower after ticking up another +0.14% and +0.69% yesterday. The VIX is also back down to 11.74 after nudging down another -2.5% yesterday and having peaked at just over 16 last week. We’ve been saying for a while that we are likely in for a quiet spell although after Amazon’s $16bn bond deal attracted orders equivalent to the GDP of Belarus ($47bn) it seems that markets are still some way from a taking a full holiday just yet.

Back to the FOMC minutes, the most notable takeaway was the reference to “most participants expected inflation to pick up over the next couple of years….and to stabilize around the 2% objective over the medium term”. However, many participants “saw some likelihood that inflation might remain below 2% for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.” The debate on inflation echoed recent comments made public by various Fed presidents, while some members noted the “committee could afford to be patient….in deciding when to increase the rates further and argued against additional adjustments until incoming information confirmed that the recent low inflation were not likely to persist”. However, those comments were balanced by the observation that “…some other participants were more worried about risks arising from a labour market that had already reached full employment and was projected to tighten further from the easing in financial conditions”. Elsewhere, on the balance sheet unwind topic, “several” members favoured an announcement in the July meeting, but most preferred to defer that decision to the next meeting in September.

So while the tone of the minutes was actually fairly balanced much of the focus was on the inflation references and particularly the dovish elements. Treasuries were a bit stronger heading into the minutes although yields nosedived a bit further after the text was digested and we saw 10y yields end 5bps lower at 2.223%. 2y yields were also a couple of basis points lower, while the USD (-0.33%) ended weaker for the first time this week. Gold also rallied +0.90% along with the wider precious metals space while EM currencies also benefited from the weaker Greenback (South African Rand +1.08%, Mexican Peso +0.85%, Ruble+0.58%). That was interestingly also in the context of a weaker day for Oil with WTI falling -1.62% following the latest US crude production data.

Staying with the US, President Trump’s political agenda appeared to take another blow yesterday, as he was effectively forced to disband two of his business advisory councils pre-emptively, given reports (per Bloomberg) that one of the groups, led by the Blackstone CEO is planning to quit. The story is taking up plenty of column space in the papers this morning and while the impact on markets wasn’t huge the S&P 500 did end up paring a gain of closer to +0.50% just before the headlines broke with some suggestion that this might make fiscal progress more difficult. It feels like one to keep an eye on.

Closer to home yesterday, European govies had a very very brief moment of excitement too at the open when a Reuters report hit the wires suggesting that President Draghi won’t deliver any new messages at the Jackson Hole conference next week on 25th. Instead the article quoted an ECB spokesman as saying that the focus will be on the “theme of the symposium, fostering a dynamic global economy”. That sounds about as vague as you can get which probably fits the bill that he’s looking for. There had been a fairly decent buzz building around the event although in fairness the ECB did suggest that the debate over tapering was more likely to take place at the September council meeting so it probably would have been a big surprise to hear anything prior to this of any substance. In terms of the moves for rates, as we noted it was very brief with Bunds at best 2bps stronger in a short period of time, only then to completely reverse and edge a little higher in the mid-morning which is roughly where they held into the close to finish up 1.2bps at 0.439%. The Euro also mostly recovered a temporary dip lower to end just +0.3% on the day.

Jumping over to the latest in Asia this morning, markets are broadly speaking flat to slightly firmer. The Nikkei is back to unchanged following a weak start, while the ASX and Hang Seng are also little changed. China bourses are up around +0.35% and the Kospi is +0.6%. US equity futures are slightly in the red however. Away from markets, Sky news reported late last night that the next phrase of Brexit talks are likely to be delayed until December (from October), in part driven by the challenge and timing of getting a more formal engagement from a new German government as federal elections will occur in September. However, it does mean leaving less than a year for talks on the future trading relationship between the UK and the EU, and another two months of the two-year Article 50 timetable being used up. The reaction for Sterling has been fairly subdued however and if anything it’s a little stronger this morning.

Moving on. In terms of data yesterday most of the focus was on GDP numbers in Europe. The eurozone print of +0.6% qoq was in line while the annual rate pushed up one-tenth to +2.2% yoy, which is the highest since March 2011. The Netherlands (+3.3% yoy vs. +2.3% expected) and Italy (+1.5% yoy vs. +1.4% expected) in particular stood in some of the details after coming in stronger than expected. This follows decent GDP data in Germany on Tuesday too.

In the US yesterday the July housing data were a tad lower than expected, with housing starts falling 4.8% mom to 1.16m (vs. 1.22m expected), largely due to a 15.3% mom decline in the multi-unit sector. Building permits fell 4.1% in July to 1.22m (vs. 1.25m expected), but this follows an upward revision to the prior month, leaving a still solid annual growth of 4.1%. Elsewhere, MBA mortgage applications dipped 0.1%.

Looking at the day ahead, the Eurozone’s July CPI came in as expected (-0.5% mom) while UK July retail sales ex fuel printed at 0.5%, above the 0.2% expected. In the US we’ve got a fair bit of data due today including July IP (0.3% mom expected), capacity utilisation, conference board US leading index (0.3% expected), the Philadelphia Fed business outlook survey (19 expected), initial jobless claims and continuing claims stats. Away from the data, the ECB will publish the account of its July policy meeting and the Fed’ Kaplan will also speak.