European stocks are down led by tech, chemicals, alongside EM stocks which retreated from near a one-year high and oil fell for the first time in a week after hawkish comments from Federal Reserve officials revived bets on U.S. interest rate rises this year, and pushed the dollar higher from 7 week lows ahead of today’s Fed Minutes. S&P 500 futures were little changed following yesterday’s drop from record highs.

The Stoxx Europe 600 Index fell for a fourth day, while MSCI’s gauge of developing-nation shares also declined, having halted an eight-day winning streak on Tuesday.

Crude pulled back from a five-week high as the Bloomberg Dollar Spot Index rebounded from near a three-month low after two regional Fed chiefs indicated interest rates could be increased at least once this year. South Korea’s won tumbled by the most since Britain voted to leave the European Union and gold declined. After sliding as low as 99.50 yesterday, a rebound in the USDJPY to 101 overnight pushed the Nikkei higher by 0.9%, closing at 16,746.

The rebound in the dollar was catalyzed by comments from Fed President William Dudley and Dennis Lockhart who jolted markets yesterday by indicating a rate hike in 2016 remained possible despite uneven growth in the world’s largest economy. Their comments helped push the probability of a Fed move above 50 percent in the futures market for the first time since the June 23 Brexit vote. Before their comments, global equities had climbed to a one-year high and the dollar index sank to levels last seen in May amid conflicting signals over the U.S. labor market and growth.

“A pull-back is following through in European stocks today after the Fed raised the possibility of a September rate hike,” said William Hobbs of Barclays in London. “It seems like expectations had become too muted.”

Today it will be all abaout the Fed again: Group head of multi-asset portfolios at GAM, Larry Hatheway, said attention was firmly on the Fed minutes and particularly why the bank’s last meeting ended with a notably cautious statement. “It wasn’t really about Brexit. It is not even about the world economy which isn’t in great shape but is somewhat improved from the first quarter fears and its surely not about the cost of capital,” Hatheway said. “So one presumes the caution reflects a thought process about a much lower equilibrium real interest rate …or possibly the fact that inflation is just not accelerating, which was corroborated to a degree by CPI data yesterday.”

But before the Fed we will get another dovish blast as St. Louis Fed chief James Bullard – the Fed’s latest uberdove – is due to speak Wednesday at 1pm, one hour ahead of the Minutes release which are scheduled for release at 2 p.m. in Washington.

In Asia overnight, the MSCI’ Asia-Pacific index ex-Japan dipped 0.3% while Japan’s Nikkei closed 0.9 percent higher, paring some of Tuesday’s sharp losses thanks to a weaker yen as it dropped back below the 100 yen per dollar level. China’s CSI 300 index and the Shanghai Composite both erased earlier losses to end the day flat after authorities approved the launch of a long-awaited scheme to allow stock trading between Shenzhen and Hong Kong.

European yields nudged 2-4 basis point lower with Spanish bonds boosted ahead of a meeting later that could pave the way for a new government in Madrid after eight months of limbo. Interim prime minister Mariano Rajoy is to hold a meeting of his Conservative People’s Party (PP) to consider a reforms-for-support offer from centrist rivals Ciudadanos. “I still have doubts about political progress in Spain and negotiations could still go on for weeks,” said DZ Bank strategist Christian Lenk. “But markets do seem to like what’s coming out of Madrid.

It has been a quiet session in European equities where the Stoxx 600 slipped 0.3% for a fourth day without gains. The volume of Stoxx 600 shares traded was 27% lower than the 30-day average. S&P 500 Index futures were little changed, after U.S. equities fell on Tuesday. ASML Holding NV dragged technology shares to the biggest decline on the equity benchmark, dropping 5 percent after Intel surprised the market when it said it won’t use the semiconductor-equipment maker’s lithography technology to make some of its chips. Carlsberg A/S slid 4.6% after the Danish brewer reported first-half profit that missed analysts’ estimates as the weakness of Russia’s ruble eroded earnings.

The MSCI Emerging Markets Index was down 0.9 percent, trimming this
quarter’s advance to less than 9 percent. In Hong Kong, small-cap shares
were the brightest
part of China’s stock markets after an exchange trading link between
the city and Shenzhen was unveiled. The Hang Seng Composite Small Cap
Index climbed 0.5 percent to four-month high.

Tyco International Plc and Johnson Controls Inc. have shareholder meetings lined up to vote on their proposed $16 billion merger, while Target Corp. and Cisco Systems Inc. are among U.S. companies reporting results.

Market Snapshot

S&P 500 futures down less than 0.1% to 2176
Stoxx 600 down 0.3% to 342
FTSE 100 down 0.1% to 6887
DAX down 0.8% to 10592
German 10Yr yield down less than 1bp to -0.04%
Italian 10Yr yield up 2bps to 1.13%
Spanish 10Yr yield up 2bps to 1%
S&P GSCI Index down 0.6% to 360.9
MSCI Asia Pacific down less than 0.1% to 139
Nikkei 225 up 0.9% to 16746
Hang Seng down 0.5% to 22800
Shanghai Composite down less than 0.1% to 3110
S&P/ASX 200 up less than 0.1% to 5535
US 10-yr yield up less than 1bp to 1.58%
Dollar Index up 0.19% to 94.97
WTI Crude futures down 0.9% to $46.14
Brent Futures down 1% to $48.75
Gold spot down 0.2% to $1,343
Silver spot down 0.9% to $19.61
Top Global News

Och-Ziff Bribery Settlement Said to Spare Firm as Unit Convicted: Hedge fund is in talks to resolve probe of dealings in Africa. Gabonese ‘fixer’ with links to firm arrested on Tuesday
Cisco Plans to Cut Up to 14,000 Jobs Within Weeks, CRN Says: CEO Robbins is shifting to emphasize software as growth slows. Cuts could account for up to 20 percent of 73,000 employees
JPMorgan Hires Sakagami as Chief Japan Equity Strategist: Fills position left vacant since Jesper Koll left last year. Top-ranked Japan equity strategist according to Nikkei Veritas
Deutsche Bank Must Consider Scrapping Bonuses, Sewing Tells Bild: Lender scrapped 2015 management bonuses following annual loss. No dividend means bonuses should be up for debate, Sewing says
BOJ Firepower Falls Short as Yen Climb to 100 Dares Japan to Act: Bank of Tokyo-Mitsubishi, Morgan Stanley see further gains
Hong Kong Exchange Sees Second Link Cementing China Gateway Role: Shenzhen link expands Chinese investor access to Hong Kong
Barnes & Noble Ousts Its CEO After Less Than a Year on the Job
FOMC releases minutes from July 26-27 meeting; follow TOPLive for blog coverage at 2pm
Hyundai Motor Says It’s Discussing Partnerships With Google
Citadel to KCG Tell SEC New Treasuries Rules Don’t Go Far Enough
Univision Said to Buy Gawker Media for $135m: Recode
U.S. Senator Seeks Multiple Reviews for Major Chem Mergers: FuW
Madison Square Garden Said to Take 12% Stake in Townsquare: WSJ
* * *

Looking at regional markets, Asia equity markets slightly shrugged off the weak lead from US markets where hawkish Fed comments weighed on risk-appetite, with Asia mixed and Japan leading as JPY pared some of its recent considerable gains. Energy names were among the outperformers in Nikkei 225 (+0.9%) on the continued advances in oil prices, with the materials sector also reflecting the strength seen across its global counterparts. Conversely, ASX 200 (flat) was initially weighed by some lacklustre earnings reports before paring loses to close flat. Chinese markets were mixed with the Shanghai Comp (flat) indecisive and Hang Seng (-0.4%) pared gains after initially being bolstered after China approved the Shenzhen¬HK stock connect which would provide wider investment options and allow foreign investors access to the world’s 7th largest stock exchange via Hong Kong. 10yr JGBs traded marginally lower amid increased demand for riskier assets in Japan, while today’s BoJ market operations were for a relatively reserved JPY 750b1n in government debt. PBoC set CNY mid-point at 6.6056 (Prey. 6.6305); strongest fix by the PBoC since June 24th. PBoC injected CNY 100bIn via 7-day reverse repos.

Top Asia News

BOJ Firepower Falls Short as Yen Climb to 100 Dares Japan to Act: Bank of Tokyo-Mitsubishi, Morgan Stanley see further gains
Hong Kong Exchange Sees Second Link Cementing China Gateway Role: Shenzhen link expands Chinese investor access to Hong Kong
Hong Kong Small Caps Rise, Brokerages Fall on Shenzhen Link News: There’s profit-taking in main beneficiaries, CMB analyst says
Aussie Rides Out RBA Cuts as World-Beating Yields Lure Funds: Options traders become least bearish on currency since 2014
Cathay Shares Drop as Profit Slumps 82% on Fuel Hedge Losses: Co.’s yields under pressure as Chinese carriers expand
Modi Sends Warning Shot to China, Pakistan on Territory Spat: Comments come after weeks of violence and tension in Kashmir
European equities extend on yesterday’s losses following hawkish comments from Fed’s Dudley and Lockhart while newsflow has been relatively light as participants await the FOMC minutes release. In terms of a sector breakdown, financial and IT names have been the notable drags, with chip maker ASML (-4.8%) one of the laggards following a negative broker move. However, equities saw a minor bounce after the UK Jobs report, in particular the Jobless Claims which showed little signs of Brexit jitters. Elsewhere, in credit markets, Portuguese bonds yet again decline amid the recent commentary from the DBRS stating that they may consider downgrading the countries rating, which could have serious implications as the ECB uses the DBRS to decides if countries are eligible for QE.

Top European News

Carlsberg 1H Organic Rev. Beats Ests., Keeps 2016 Outlook
Admiral Group Biggest SXXP Decliner As Solvency Ratio Drops
ABN Amro Says 2Q Net Profit Impacted by Derivatives Provision
Deutsche Bank Must Consider Scrapping Bonuses, Sewing Tells Bild: Lender scrapped 2015 management bonuses following annual loss. No dividend means bonuses should be up for debate, Sewing says
U.K. Dividends at Risk as BOE Action Swells Pension Hole: Rate cut lowers yields, piling pressure on retirement plans. Some investors dump shares as dividend reductions loom
Credit Suisse Joins War for Quants, Hiring Rothman to Build Team: He’ll assemble equity researchers to hone strategies, products. Banks and fund managers are snapping up quants to sift data
In FX, the Bloomberg Dollar Spot Index rose 0.4 percent, after sliding 1 percent over the past three days. “While Dudley was at least able to stem the bleeding for the dollar index, price action is not encouraging for the dollar near term,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Still, so long as a rate hike seems more likely than not as the Fed’s next move, we wouldn’t get super bearish on the dollar.” The yen was down 0.5 percent at 100.76 per dollar, after strengthening beyond 100 on Tuesday for only the second time this year. The currency is still up 19 percent for the year and Japanese Vice Finance Minister Masatsugu Asakawa said policy makers are prepared to intervene if exchange-rate moves are extreme. South Korea’s won slumped 1.5 percent, its steepest slide since June 24. The currency climbed to its strongest level in more than a year last week and its 14-day relative strength index ended the last session below 30, a sign to some investors that a retreat was likely. The MSCI Emerging Markets Currency Index lost 0.6 percent, headed for the biggest drop in seven weeks on a closing basis.

In commodities, oil halted its advance after the biggest four-day gain since April as weekly industry data showed U.S. gasoline stockpiles expanded, keeping supplies at the highest seasonal level in more than two decades. West Texas Intermediate crude slipped 0.9 percent to $46.15 a barrel, ending a 12 percent rally over the preceding four days after Saudi Arabia said it is prepared to act to stabilize markets. U.S. inventories of motor fuel increased by 2.18 million barrels last week while crude stockpiles dropped by 1 million barrels last week, the American Petroleum Institute was said to report Tuesday. Government data Wednesday is forecast to show a drop in gasoline supplies and an increase for crude. Gold’s two-day gain stalled on the Fed rates speculation. Bullion for immediate delivery slipped 0.3 percent to $1,342.63 an ounce. Silver lost 1 percent. U.S. natural gas futures rose 1.1 percent to $2.645 per million British thermal units, a fourth day of gains and the longest rally since the start of June. Temperatures may be above average in the East and Northwest, boosting demand for electricity for cooling.

It’s quiet on the US calendar today where the focus will be on the FOMC minutes tonight, while the DOE will release the official weekly inventory data at 10:30am ET.

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

European equities enter the North American crossover lower amid yesterday’s hawkish Fed rhetoric with newsflow otherwise light
GBP/USD was lent some support by the latest jobs report, although gains have now been pared with the data not providing too much insight into the post-Brexit fallout
Looking ahead, highlights include FOMC Meeting Minutes, DoE crude oil inventories and comments from Fed’s Bullard
Treasuries lower in overnight trading with global equities, oil and gold; FOMC minutes at 2pm ET may “reflect greater confidence in labor mkt and domestic economic growth than in June.”
The U.K. labor market showed signs of continued resilience after the country’s referendum on EU membership, as jobless claims unexpectedly fell 8,600 in July after increasing 900 in June
Norway’s $890 billion sovereign wealth fund, the world’s biggest, took the step of independently cutting the value of its massive U.K. real estate portfolio by 5% after Britain voted to leave the European Union
Russia is delaying what would have been its biggest asset sale in a decade after renewed weakness in global oil markets and tensions among potential buyers upended plans to offer a stake in Bashneft PJSC
ABN Amro jumped the most in almost six months after second- quarter profit beat estimates and Chief Executive Officer Gerrit Zalm announced plans to cut costs by about 200 million euros ($225 million)
Chinese authorities said 450 suspects have been arrested this year in a crackdown on using offshore companies and “underground banks” to transfer money illegally
Cisco Systems, the largest maker of networking equipment, will cut as many as 14,000 employees worldwide, or 20% of its workforce, CRN reported, citing people close to the company
US Event Calendar

7am: MBA Mortgage Applications, Aug. 12 (prior 7.1%)
10:30am: DOE Energy Inventories
1pm: Fed’s Bullard speaks in St. Louis
2pm: FOMC Minutes
DB’s Jim Reid concludes the overnight wrap

The FOMC minutes (from the July 26-27 meeting) will be a little more interesting than previously thought after the influential and usually relatively dovish NY Fed President Dudley’s unscheduled comments yesterday. He suggested that a September hike was “possible” and that “we’re edging closer towards the point in time where it will be appropriate to raise rates further.” He added that 10y Treasuries were “pretty low given the circumstances” and that the Fed funds futures market was underpricing rate hikes. We’ve heard this sort of thing a lot in recent years from FOMC members without much eventual action so we shouldn’t over interpret but it was inevitable that it would impact rates pricing yesterday.

Indeed while 10y Treasury yields only ended up climbing 1.7bps yesterday to close at 1.575% they were up some 6bps from the intraday lows just prior to Dudley’s comments. The same can be said for 2y yields which were at 0.681% prior to the comments and 0.746% by the end of the session (+2.0bps on the day and +6.4bps from the session low). September rate hike expectations edged up to 22% from 18% the day prior while December expectations rose from 45% to 51%. European government bond markets also followed the lead. 10y Bund yields ended up climbing 4.4bps to -0.031% which is the highest yield since August 4th, while the peripherals were up anywhere from 5bps to 15bps in yield. We’ve seen a similar move in Asia this morning where 10y JGB’s are +3.0bps and similar benchmark bonds in the Australian, NZ and China are 2-4bps higher.

Staying with bonds, yesterday we saw the latest long-dated reverse Gilt auction which was hotly anticipated after last week’s failure from the BoE to buy the desired amount. With a week of press and publicity it was expected that they would have more success this week and indeed they did. However the £3.12bn tendered vs. the £1.17bn desired (2.67 covered) was still less than for any of the other non long-end auctions so far (3.54 times being the lowest cover). We also have a 2055 Gilt auction today which may have encouraged more sellers than last week. 30 year gilts sold off 5.6bps yesterday but this was in line with international equivalents. Given the BoE will be buying these bonds every week this story will continue to be a big theme for many months and we’d expect the supply/demand dynamics at the long end to continue to be tough for the Bank.

Meanwhile, there was little evidence that the big post-referendum decline for Sterling has fed through to headline consumer prices yet as the July headline CPI reading came in as expected at -0.1% mom. The YoY rate did however nudge up one-tenth to +0.6% while the core reading was down one-tenth to +1.3%. That said the more interesting read-through was in producer prices where PPI input rose a significant and more than expected +3.3% in July (vs. +1.0% expected). That was most since 2011 while the YoY rate is now up to +4.3% from -0.5% and so ends 32 consecutive months of deflation in input costs.

Risk assets ended up spluttering yesterday following Dudley’s comments with US equity markets in particular retreating from Monday’s record high marks. The S&P 500 (-0.55%), Dow (-0.45%) and Nasdaq (-0.66%) all closed lower while in Europe the Stoxx 600 (-0.79%) also ended up weakening as automakers in particular came under pressure. The rally for emerging markets also finally came to a halt with the MSCI emerging markets index (-0.03%) just about closing in the red following eight consecutive daily gains which had seen it surge over 5%. Notably the weaker performance for equity markets also came despite another +1.84% rally for WTI where some pre-Dudley weakness for the USD (-0.88%) supported gains.

This morning in Asia it’s been another relatively mixed start. Currently in the red is the Shanghai Comp (-0.52%), Kospi (-0.66%) and ASX (-0.08%), however the Nikkei (+0.50%) and Hang Seng (+0.21%) are both up in early trading. The Shenzhen is also a touch higher after Beijing yesterday approved the long awaited Shenzhen and Hong Kong trading link. Meanwhile gains for Japanese equities this morning have come about following a slightly weaker morning for the Yen which has been a big focus in the last couple of days. After breaking below 100 yesterday, the Yen is -0.32% weaker this morning at 100.62. Japan’s Vice Financial Minister said earlier that he is watching with ‘a strong sense of concern’ about moves in the currency and would look to act if needed.

Moving on. Despite playing second fiddle to Dudley yesterday, the Atlanta Fed’s Lockhart also attracted a bit of attention when he said that ‘I’m not locked in to any policy position at this stage, but if my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year’.

The hawkish Fedspeak largely overshadowed what was a mixed batch of economic data in the US yesterday. Of most focus was the July CPI report where headline inflation printed at 0.0% mom as expected although the YoY rate rounded down to a slightly lower than expected +0.8% from +1.0% in June. The core (+0.1% mom vs. +0.2% expected) also rose less than the market had forecasted resulting in the YoY rate dipping one-tenth to +2.2%, driven primarily by an unusual plunge in airfares.

There was better news in the latest activity indicators however where industrial production rose a bumper +0.7% mom last month (vs. +0.3% expected). Capacity utilization was up half a percent to 75.9% (vs. 75.6% expected) while manufacturing production also rose a robust +0.5% mom (vs. +0.3% expected). Finally the latest housing starts data covering July revealed starts rose +2.1% mom in July (vs. -0.8% expected) leaving the annualised level of starts at the highest since February. Building permits (-0.1% mom vs. +0.6% expected) were a bit weaker than expected however. The only other data to note came in Germany where the August ZEW current situations index bounced back from its post-Brexit decline to rise nearly 8pts to 57.6 (vs. 50.2 expected). That actually left the index at the highest level since January while the expectations component rose over 7pts to +0.5.

Looking at the day ahead, this morning in the UK we’ll get the next slug of data with the latest employment numbers. We’ll get the claimant count and jobless claims change data for July (i.e. post referendum) along with the ILO unemployment rate and average weekly earnings data in the three months to June. It’s quiet in the US this afternoon where the focus will be on the FOMC minutes tonight. Away from the data we’ll also hear from the Fed’s Bullard again this evening at 6pm BST where he’s due to speak on the US economy and monetary policy\