- Indices remain volatile this morning - with all three of the major indices moving to the downside once again - as traders digest the negative July retail sales reading, John Deere's earnings miss and lower guidance out of Liz Claiborne and Macy's. Front-month crude is up more than a dollar after the weekly DoE inventory report showed declines across all products, which in turn has helped spark some demand for the oil complex. OIH +2.5% XOM +1.5% CVX +1.25% The Commerce department reported that July retail sales fell to their lowest levels in five months, while the ex-auto number was a hair lower than expected. DE-12% is taking a drubbing after reporting earnings slightly below estimates, despite beating revenue estimates and guiding higher for the year. LIZ-10% had fallen as much as 17% before recovering somewhat after cutting its FY08 outlook and guiding lower for the coming quarter. LIZ did manage to exceed both EPS and revenue projections for the quarter. M-6% told a similar story: the retailing giant beat earnings expectations but slashed its full-year guidance. Impressive quarterly reports at Applied Materials and Brocade are helping the NASDAQ to some relative outperformance. BRCD+5% is up on solid earnings and guidance that is in-line with expectations, although the company did caution that the macroeconomic situation remains a challenge. AMAT+5% came in ahead of estimates but guided lower for the coming quarter, noting that if current trends continue it expects to be more bullish regarding next year's performance. CSIQ-10% is having a bad morning despite reporting nearly twice the profit analysts had predicted; the solar manufacturer guided below expectations for the coming quarter's revenue and projected a very wide band for full-year revenue that could mean a big win or loss for the firm this year. The financials are broadly weaker as various commentators note their pessimism regarding the credit crisis including S&P which note that banks are at best half way through the credit crisis. Further, a Citigroup analyst said Merril would likely reports a Q3 loss of -$5.07/shr. Moody's cut a Morgan Stanley unit's credit rating and the WSJ's Heard on the Street said that JP Morgan's warning about a $1.5B mortgage-related loss shows that credit markets are as unsettled as ever. Freddie and Fannier are both down about 5% after Freddie said overnight it will no longer buy subprime mortgages backed by New York properties. In other news, LDG+30% is being acquired by CVS for $71.50/shr in a deal worth a total of $2.9B. Also, the WSJ reported overnight that CME and NMX are fighting off a last-minute revolt against their merger among NYMEX members.

- In currencies, the GBP/USD pair dropped to its lowest level since October 2006 after the BoE's quarterly inflation report highlighted concerns among centrals banks regarding the delicate balance between growth and inflation. The BoE lowered the 2009 GDP outlook and noted that a protracted slowdown was necessary to bring CPI back under the 2% target. The BoE's King emphasized that the UK economy is facing an unavoidable and painful period of adjustment. The BoE's GDP outlook prompted rate cut speculation among FX dealers, taking the probability of a BoE rate increased to over 60% by year-end from the 25% chances prior to the report. Markets are pricing in another 25bp interest rate cut by May 2009. Gilts rose 80 ticks to 109.48 before consolidating their gains. The EUR/GBP cross was over 100bps higher at 0.7961 while the GBP/JPY cross dropped by over 400 pips to the 202.70 area. Overall the session sees a theme of a weaker GBP and a stronger USD and JPY.

- Renewed rumors of skirmishes between Russia and Georgia in the South Ossetia region flared up overnight, with CNN reporting that the truce had been broken just ahead of the New York equity open.

- The USD pared its session gains following the weekly DOE inventory report, which registered larger draws in crude and gasoline components. The recent gains in the USD have prompted chatter speculating that the Fed may have initiated "stealth intervention" over recent weeks. The fall in the Treasury's international reserves in recent providing the backdrop to this speculation.

- The market is anticipating the German Preliminary Q2 GDP even more, with the reading due out before the European equity open on Thursday. Current expectation is for a reading of -0.8%. Recent speculation is looking for German GDP to fall in a range of 0.75% to 1.5%.

- In European fixed-come futures, the yield curve gapped steeper as the bullish market focused on comments from the BoE's King to the effect that the economic slowdown would eventually bring inflation back to the bank's 2% target in the medium term.