European, Asian stocks and S&P futures all fell in another quiet, low-volume early session. With oil entering a bull market yesterday (after sliding into a bear market just weeks ago), and set for its longest run of gains in 4 years after, overnight crude stumbled, and reversed early gains, falling for the first time in seven days driven by rebound in the dollar which gained versus all G-10 currencies with commodity currencies underperforming.

“I think it’s the case that we’ve run up pretty hard in the past six weeks or so and that slightly caught investors unawares,” James Buckley at Baring Investment told Bloomberg. “That’s probably going to mean that to push on further from here we would need some further affirmative data. I wouldn’t be surprised to see a pause around these levels, I don’t necessarily think it will be up or down, but certainly a pause, perhaps with a downward drift.”

The Bloomberg Dollar Spot Index was +0.5% at 1,167.08, set for the biggest one-day gain since July 19 and trimming this week’s loss to 1 percent. While the U.S. central bank’s minutes showed Wednesday that officials were split in July on the need for an interest-rate hike, New York Fed chief Dudley said the previous day that the market was underestimating the likelihood of an increase. “The Fed’s apparent lack of urgency to raise rates is encouraging expectations of further dollar declines,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Today is probably just a blip in the dollar’s lousy August so far.”

Financial markets were confused this week by more hawkish comments from regional Federal Reserve chiefs including New York’s William Dudley, while minutes of the last policy meeting struck a dovish tone seeing little prospect of a sharp increase in price pressure. The events set the stage for Fed Chair Janet Yellen, who speaks at a meeting of global policy makers in Jackson Hole, Wyoming, next week. December rate hike odds stand at 47%, fed fund futures show. That compares with 36% at the start of the month.

“The Fed, at least in speeches this week, has been trying to get markets more in line with what they expect from monetary tightening this year,” said Richard Falkenhall, a strategist at SEB AB in Stockholm. “But the market is still not convinced.”

Europe’s Stoxx 600 Index is heading for a 1.4% weekly decline, the largest weekly drop since mid-June. Trading volumes were about a third lower than the 30-day average. Italy’s FTSE MIB, the worst performing index in the world this year, tumbled 1.9 percent.

Intesa Sanpaolo SpA weighed heaviest on the index with a 3.1 percent drop. Italy’s shares led declines on Friday and its government bonds yielded the most relative to Spain’s in more than 18 months as concern over the health of the country’s banking industry and political risks weighed on the nation’s assets. Equities in emerging markets erased a sixth week of gains. Gold lost ground for the first time this week as Bloomberg’s dollar index rose from a three-month low. Oil was headed for its biggest weekly jump since March amid speculation major producers will act to freeze output. Insurers were the biggest decliners on Friday, while BMW AG led automakers lower. BHP Billiton Ltd. and Glencore Plc dragged a gauge of miners down as commodity prices slipped. Royal Vopak NV tumbled 6.9 percent after the storage-tank operator reported lower revenue and cashflow.

S&P 500 Index futures were down 0.3% in premarket trading. Applied Materials Inc. advanced 6.5 percent in European trading after the biggest maker of machinery used to manufacture semiconductors predicted revenue and profit that may surpass estimates.

The MSCI Emerging Markets Index slid 0.8 percent, leaving it down 0.1 percent in the week. The measure is up 15 percent this year compared with a 4.4 percent increase in the MSCI World Index of developed-nation stocks.

10Y Treasuries yielded 1.54%, little changed on the day and up three basis points for the week. The two-year note yield, among the maturities most sensitive to the outlook for Fed policy, was little changed this week at 0.71 percent.

Market Snapshot

• S&P 500 futures down 0.3% to 2177
• Stoxx 600 down 0.6% to 341
• FTSE 100 down 0.1% to 6860
• DAX down 0.8% to 10517
• German 10Yr yield down less than 1bp to -0.09%
• Italian 10Yr yield up 3bps to 1.11%
• Spanish 10Yr yield up 3bps to 0.94%
• S&P GSCI Index down 0.6% to 368.7
• MSCI Asia Pacific down 0.3% to 139
• Nikkei 225 up 0.4% to 16546
• Hang Seng down 0.4% to 22937
• Shanghai Composite up 0.1% to 3108
• S&P/ASX 200 up 0.3% to 5527
• US 10-yr yield up less than 1bp to 1.54%
• Dollar Index up 0.4% to 94.53
• WTI Crude futures down 0.5% to $47.98
• Brent Futures down 0.8% to $50.46
• Gold spot down 0.4% to $1,347
• Silver spot down 0.9% to $19.57

Global Headline News

• Viacom Board Said to OK Settlement; Dauman Steps Down as CEO: COO Tom Dooley to take over as interim chief executive officer. Settlement marks near-total victory for Sumner, Shari Redstone
• Exxon, Chevron, Hess Said to Be in Joint Bid for Mexican Oil: Mexico to auction rights to 10 deepwater oil fields on Dec. 5. Companies have until Nov. 18 to report bid groups to regulator
• China Sovereign Fund Said to Seek $9 Billion Vale Streaming Deal: Miner also talking to other Asian cos. on stake sale
• Chipotle Is Still in a Funk and Wall Street’s Getting Impatient: Sales haven’t recovered as marketing spending gets a boost; “they’re going to have to find a different way to operate.”
• Monte Paschi Says It Acted Properly as CEO Viola Investigated: Bank says operations were carried out by previous management. Reuters reported that Viola, Profumo being investigated
• Katsuyama Shakes Up Industry Even Before His IEX Exchange Opens: Nasdaq, NYSE want new kinds of orders in response to upstart. IEX begins trading as 13th U.S. stock exchange on Friday
• NBC’s $12b Olympics Bet Stumbles, Thanks to Millennials: Prime-time broadcast viewership has been down ~17% compared to the London games four years ago
• Singapore Defaults Boost Calls for Aid as Oil Firms Falter: More bonds may default without further bank help, UBS analysts say
• VW’s German Production at Risk as Supplier Spat Sparks Slowdown:
  Shortened work hours at Emden plant may widen to more sites. Cutbacks
  compound woes as VW seeks to resolve diesel scandal

* * *

Looking at regional markets, we find that Asia failed to sustain the early widespread energy-inspired gains in which oil rallied 3% and officially entered bull market territory, with the regional stock markets mixed. Nikkei 225 (+0.4%) initially outperformed on JPY weakness but then pared some gains as China bourses entered the fray and dragged sentiment lower. ASX 200 (+0.3%) also saw choppy trade amid weakness in financials after Moody’s downgraded its outlook on the big 4 banks and Australia’s banking system to negative. Chinese markets were initially lower with the Hang Seng (-0.4%) and Shanghai Comp (+0.1%) weighed on following reports of possible curbs on the financial and property sectors, while the PBoC also reduced its net weekly liquidity injection. However, the Shanghai Comp managed to pare losses heading in to the close. 10yr JGBs traded flat amid indecisiveness seen across riskier Japanese assets, while the BoJ were present in the market to acquire JPY 1.25tr1 in government debt.

Top Asia News

• China Sovereign Fund Said to Seek $9 Billion Vale Streaming Deal: Miner also talking to other Asian cos. on stake sale
• Singapore Defaults Boost Calls for Aid as Oil Firms Falter: More bonds may default without further bank help, UBS analysts say
• Idle Credit Cards in Asians’ Wallets Prompt Citi, HSBC Overhaul: Banks are eyeing rapid growth of payment transactions in Asia
• The Gold Medal for Buying Up Brazilian Assets Goes to China Inc.:China surpasses U.S., U.K. as top buyer of Brazilian assets
• Citic Unit Plans Japan Private Equity Fund as China Buying Jumps: 30b yen fund has invested in Akakura, Mark Styler
• Bank of East Asia Profit Drops 38% as China Drags on Lending: Weaker China economy causes loan impairments to surge 60%

European equities are softer this morning (Euro Stoma -0.9%) with notable weakness in telecom and health care names, allied with the moves lower in oil prices which have seen a pull-back as Brent crude futures fall below USD 51. Additionally, downside in equities has been somewhat exacerbated by the thin market conditions with newsflow relatively light as has been the case over the past week. In credit markets, Bunds are relatively flat despite the downside in equities, while there has been some notable outperformance in the long end of the curve. In terms of peripheral bonds, Portuguese yields are firmer this morning ahead of Fitch’s sovereign announcement with risks concerning over the potential moves to their outlook.

Top European News

• Monte Paschi Says It Acted Properly as CEO Viola Investigated: Bank says operations were carried out by previous management. Reuters reported that Viola, Profumo being investigated
• U.K. Posts Surplus as Bank Surcharge Boosts Corp. Taxes: U.K. posted surplus in July as govt’s tax take was boosted by first payments under a surcharge on banks introduced last year.
• VW’s German Production at Risk as Supplier Spat Sparks Slowdown: Shortened work hours at Emden plant may widen to more sites. Cutbacks compound woes as VW seeks to resolve diesel scandal
• Brunel Drops; 2Q Numbers Beat, But FY Guidance Weak, Kepler Says: Brunel International falls as much as 7.6% in early trading, vol. 85% of 3-mo. daily avg. at 9:09am CET; 2Q figures beat ests, but FY Ebit guidance of EU30m-EU35m is “clearly” lower than consensus, Kepler Cheuvreux says in note.
• Deutsche Bank Whistle-Blower Spurns $8 Million SEC Reward: Eric Ben-Artzi complains that top executives went unpunished. Former Deutsche Bank risk officer writes opinion piece in FT

In FX, the Bloomberg Dollar Spot Index rose 0.4 percent, trimming this week’s loss to 1 percent.While the U.S. central bank’s minutes showed Wednesday that officials were split in July on the need for an interest-rate hike, New York Fed chief Dudley said the previous day that the market was underestimating the likelihood of an increase. “The Fed’s apparent lack of urgency to raise rates is encouraging expectations of further dollar declines,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Today is probably just a blip in the dollar’s lousy August so far.” The yen weakened 0.2 percent to 100.13 per dollar, paring its weekly gain to 1.2 percent. The currency has strengthened 20 percent this year and Japan’s Vice Finance Minister Masatsugu Asakawa said on Thursday that policy makers are prepared to take action if speculative trading is evident. The MSCI Emerging Markets Currency Index declined 0.5%, set for its first weekly loss in four weeks. Mexico’s peso and South Africa’s rand led losses on Friday, both sliding more than 1 percent.

In commodities, oil headed for its strongest weekly increase in four months after entering a bull market amid speculation that major producers may act to freeze output at the same time U.S. crude and fuel stockpiles decline. West Texas Intermediate crude fell 0.4 percent to $48.01 a barrel, paring its weekly gain to 7.9 percent. Brent lost 0.8 percent to $50.48. Prices have risen steadily since Saudi Arabian Energy Minister Khalid Al-Falih said Aug. 11 that informal talks in September may lead to action to stabilize the market. Most metals declined as a rebounding dollar made commodities more expensive to investors in other currencies. Gold dropped 0.4 percent to $1,346.85 an ounce, snapping a four-day advance as the dollar rebounded. Zinc dropped 0.8 percent, paring a weekly gain and retreating from the highest level in 15 months. Copper fell 0.4 percent.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities trade lower as markets take an opportunity to pare some of the week’s gains
• This has also been triggered by softness in commodities with analysts cynical about the potential efficacy of an oil production freeze
• Looking ahead, highlights include Canadian CPI
• Treasuries mostly steady in overnight trading, global equities higher in Asia, drop in Europe; WTI crude has closed over $45/barrel each day this week, now trading at just over $48.
• Even if OPEC strikes a deal with Russia next month to freeze oil production, success will mean a lot less than when they tried and failed four months ago. Oil has rallied more than 10% since OPEC said that it will hold an informal meeting
• Federal Reserve officials have gone out of their way this week to stress the market is underestimating the odds of an interest-rate increase this year — and yet the probability of such a move has fallen back below 50%
• U.S. regulators looking to avoid bailouts of too-big-to-fail banks have passed so many rules that regional and local lenders are combining to stomach the costs. Mergers and acquisitions by U.S. banks surged last year to about $18 billion, the highest level since 2009
• Billionaire Paul Tudor Jones, who’s facing his worst performance since the global financial crisis, wants to show investors he hasn’t lost his mojo. He’s also demanding that all his managers take more risk in their bets
• Will the Socialists dare to steal Christmas? That’s the question that Spaniards are asking after caretaker Prime Minister Mariano Rajoy agreed to face a confidence vote in parliament at the end of this month
• Ukraine’s president Petro Poroshenko warned of a possible invasion by Russia and said the military may consider imposing a draft if hostilities worsen

DB’s Jim Reid concludes the overnight event wrap

Markets don’t appear to be in much of a race to get anywhere at the moment with the last 24 hours or so consolidating further the post-FOMC minutes price action reversal of NY Fed President Dudley’s more hawkish comments from earlier in the week. We did actually hear from Dudley again yesterday when he spoke to a press briefing. Much of his commentary pointed towards the recent strength in the labour market which has ‘helped allay concerns that arose earlier this year that job growth was beginning to stall and reinforced my view that labour market conditions continue to improve’. Dudley also said that he expects growth in the second half of this year to be ‘quite a bit stronger’ than in the first half but that the labour market data will get greater weight given that the labour market is part of the Fed’s dual mandate and that the Fed is not targeting GDP growth.

The San Francisco Fed President John Williams (seen as relatively centrist) also spoke shortly after although he didn’t offer much in the way of new views. Williams said that ‘I think every one of our meetings should be in play in principle’ including September and that this ‘makes sense given where the economy is’. Williams also said that ‘I don’t think I’m in a hurry to raise rates’ but ‘I don’t think that it would be helpful to allow this economy to overheat’.

Treasuries continued to firm up again yesterday with 2y and 10y yields down 2.4bps and 1.4bps respectively to 0.703% and 1.536%. The latter is now within half a basis point of doing a full circle from the pre-Dudley levels on Tuesday. Meanwhile the US Dollar came under renewed pressure again yesterday, with the Dollar index closing -0.59%. Risk assets eked out modest gains with the S&P 500 and Dow closing +0.22% and +0.13% respectively. The odds of a September rate rise have held steady at 20% (versus 22% on Tuesday) while December odds are down to 47% from 49% on Wednesday and 51% on Tuesday.

Elsewhere European equity markets also finally snapped out of a four-day slump (Stoxx 600 closed +0.72%) with the better tone for risk yesterday also given a boost by another sharp leg higher for Oil. WTI rallied +3.06% yesterday to a close a shade above $48/bbl, while Brent climbed +2.09% to finish above $50/bbl for the first time since July 4th. In fact that’s the sixth successive daily gain for Brent and it has now risen over 22% from the intraday lows on August 2nd and so taking it back into a bull market. Yesterday’s gains came despite there being little new news, instead just seemingly an extension of the positive momentum we’ve seen this month as hopes have risen around a potential OPEC production freeze next month.

Oil is little changed this morning but despite the move yesterday, most major bourses in Asia this morning are trading in the red, albeit modestly. The Hang Seng (-0.50%), Shanghai Comp (-0.36%) and Kospi (-0.22%) are all currently lower although the Nikkei (+0.39%) has bounced back this morning with the Yen (-0.48%) having a rare weaker day after trading back up above 100. In fact it looks set to end five prior consecutive days of gains.

The main economic data of note yesterday was again focused on the UK where the July retail sales data came in much better than expected, adding to the reasonably solid post Brexit data that we’ve seen this week. Excluding fuel, sales rose a bumper +1.5% mom last month (vs. +0.3% expected) which helped to lift the YoY rate to +5.4% from +3.9%. Including fuel, sales were also up an impressive +1.4% mom (vs. +0.1% expected). The YoY rate including fuel is now +5.9% (from +4.3%) which is the highest since September last year. Much of the commentary suggested that the warm weather was a big contributor and it’ll be interesting to see what the August numbers look like. Sterling rallied +0.97% yesterday post the data and is now back above $1.31.

Elsewhere, in the US the main data of note was a pickup in the headline Philadelphia Fed manufacturing index of 4.9pts to +2.0, which was in line with the market. It was some weakness in the details which caught our attention though. The new orders index tumbled to -7.2 from +11.8 in the prior month, while the number of employees weakened further to -20.0 from -1.6. The average workweek was also lower although we did see a pickup in the six-month ahead business conditions reading to the best level since January 2015. Elsewhere, initial jobless claims declined 4k last week to 262k and the Conference Board’s leading index (+0.4% mom vs. +0.3% expected) was up a little more than expected.

The only other data yesterday came in Europe where the July CPI reading for the Euro area came in a smidgen lower than expected (-0.6% mom vs. -0.5% expected) and the unemployment rate in France ticked down three-tenths to 9.9% in Q2.

It looks set to be a fairly quiet day ahead and finish to the week. This morning in Europe we’ll get the latest Germany PPI data (covering July) along with more data out of the UK, this time in the form of public sector net borrowing data for July. There’s nothing due out in the US this afternoon and just 3 corporate earnings reports from the S&P 500 are due out from the retail sector.