Newsquawk US Market Wrap: Stocks rally across the board while long-end yields advance higher

SNAPSHOT: Equities up, Treasuries down, Crude down, Dollar up, Gold REAR VIEW: ISM Services headline misses & prices rise; Two refineries reportedly hit in Saudi Arabia; Mixed reporting on current state of Saudi's East-West pipeline; Spanish PM Sanchez called an early election; Japan's GPIF reportedly didn't discuss allocation at its September meeting; Bolsonaro edges Lula in first Brazil election round COMING UP: Data: Australian Westpac Consumer Confidence (Oct), German Factory Orders (Aug), EU Retail Sales (Aug), US ADP Employment Change Weekly, Atlanta Fed GDP (Q3). Events: EIA STEO. Speakers: BoE's Mann; ECB's Zigman, Elderson, Cipollone; Fed's Williams, Bowman, Schmid. Supply: Japan, UK, Germany, US. WEEK IN FOCUS: FOMC Minutes, US ISM Services PMI, OPEC+, Canadian Jobs and ECB Minutes. Click here for the full report. WEEKLY US EARNINGS ESTIMATES: PEP the highlight in a thin week of earnings. Click here for the full report. MARKET WRAP Stocks rallied on Monday, with broad-based gains across the major US indices, including the equal-weight S&P 500. Sectoral performance was also strong, with all sectors closing higher aside from Real Estate, while Materials, Communication Services and Health Care led the gains. Treasuries sold off and the curve bear steepened, with long-end yields leading the move higher. There was little reaction to the US ISM Services PMI report, which fell marginally below forecasts as activity measures slowed M/M, while Prices accelerated and Employment returned to expansionary territory. The rise in yields supported the Dollar, while the Euro underperformed amid lingering French fiscal concerns and further protests, and Spain's PM called for a snap election. Elsewhere in FX, the Aussie outperformed alongside higher metal prices, while the Yen saw some strength following constructive commentary from Japanese PM Takaichi, who vowed to maintain fiscal discipline. Crude prices were choppy on mixed geopolitical reports, particularly regarding Saudi Arabia and Yemen, alongside reports of fires in the Saudi oil export line and strikes at refineries, but crude ultimately settled in the red. Gold gave back its earlier gains as US yields moved higher throughout the session. Note: Brazilian assets rallied following election results over the weekend, which put Bolsonaro ahead of incumbent President Lula, with the Presidential election run-off vote due 25th October. US ISM SERVICES PMI: The ISM Services PMI report was mixed. The headline fell to 54.9 in September from 55.4 in August, slightly below the 55.0 forecast but above the 54.1 twelve-month average. Business Activity dropped to 56.5 from 61.7, while New Orders also fell to 56.5 from 61.7, weighing on the headline print. On inflation and employment, the Prices Index rose to 74.0 from 72.6, above the 73.3 forecast, while Employment returned to expansionary territory after two months of contraction, rising to 50.1 from 47.8 and above the 48.8 forecast. Meanwhile, thirteen industries reported growth, one more than in August, while four reported contraction, one fewer than the prior month. The report noted that tariff and fuel-cost impacts were the most cited issues affecting supply chains, with fuel costs mentioned twice as often as any other single issue, while supply-chain constraints were also a key concern. Pantheon Macroeconomics highlights that the report suggests activity in the services sector is rising at no more than a moderate pace and points to less momentum in services activity than indicated by the S&P Global Services PMI. The upside in employment is encouraging, particularly after the weak September NFP report, but the upside in prices remains a clear concern for the Fed. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 4+ TICKS LOWER AT 104-07 Yield curve bear steepens as long end leads yields higher. At settlement, 2-year +0.4bps at 4.831%, 3-year +0.2bps at 4.959%, 5-year +0.9bps at 5.063%, 7-year +2.3bps at 5.186%, 10-year +3.2bps at 5.307%, 20-year +3.9bps at 5.709%, 30-year +3.8bps at 5.661%. THE DAY: Treasury yields continued to move higher on Monday, with the curve bear steepening as the long end led the move. There was no Fed speak to digest, while US data saw a mixed ISM Services PMI report. The headline declined M/M to marginally below expectations, with Business Activity and New Orders both falling sharply, indicating slower activity growth than in August. Conversely, Prices accelerated further and Employment returned to expansionary territory. The data ultimately had little impact on Treasury price action. The moves largely continued Friday's reversal despite the soft NFP report. Meanwhile, oil prices settled in the red, albeit after choppy trade, which may have helped keep the front end of the curve relatively anchored. More broadly, the price action extends the trend seen over recent months, with Treasury yields continuing to climb and the move accelerating since September amid renewed upside in oil prices, the resumption of Fed rate hikes and persistent global fiscal concerns. The AI investment boom has also remained a potential source of pressure through expectations for stronger investment and growth, alongside the significant financing needs associated with the buildout. Overall, there was no obvious fresh catalyst behind Monday's price action, with the move instead appearing to reflect a continuation of the broader trend seen in recent months. Supply Notes US to sell USD 58bln 3yr notes on October 6th, USD 39bln 10yr notes on October 7th; and USD 22bln 30 year bonds on October 8th; all to settle on October 15th Bills * US sold 6-month bills at a high rate of 4.165%, B/C 2.79x; sold 3-month bills at a high rate of 4.050%, B/C 2.51x * US to sell USD 95bln of 6-week bills on October 6th; all to settle on October 8th STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Oct 6.0bps (prev. 5.7bps), Dec 27.1bps (prev. 25.9bps) EFFR at 3.88% (prev. 3.88%), volumes at USD 118bln (prev. USD 120bln) on October 2nd SOFR at 3.88% (prev. 3.87%), volumes at USD 3.013tln (prev. USD 3.067tln) on October 2nd NY Fed RRP op demand at 1.00bln (prev. 1.50bln) across 6 counterparties (prev. 3) on October 5th US Treasury to buy back up to USD 4bln of 2-3 year notes on October 6th (as expected) CRUDE WTI (X6) SETTLED USD 1.68 LOWER AT 89.43/BBL; BRENT (Z6) SETTLED USD 1.93 LOWER AT 100.32/BBL The crude complex ended the day in the red, albeit in choppy trade, amid a slew of market moving headlines. Initially, benchmarks saw upside after AFP reported that Saudi Arabia's East-West oil pipeline pumping reportedly halted after a new attack. However, oil swiftly pared these initial moves as BBG citing sources said East-West pipeline is flowing as normal. Benchmarks later saw upside on two further supply headlines, with them being: 1) Reports of a "massive explosion" at a oil refinery in Jeddah, Saudi; 2) Yemeni Houthis hit Saudi Arabia's Ras Tanura refinery (550k BPD) with missiles. In the midst of the upside, there were some positive geopolitical updates, which prompted downside, as Yemeni Houthi leader reportedly called for a truce, saying “no one benefits from war, while the Iranian Interior Minister headed to Doha for talks. However, Houthi media pushed back on claims of a truce. Elsewhere, Yemeni government forces also claimed control of Bab al-Mandab, although the Houthis disputed the government claims of victory. Overall, WTI traded between USD 88.88-91.88/bbl and Brent USD 99.90-103.40/bbl, as traders await any further updates on geopolitics. EQUITIES CLOSES: SPX +0.71% at 7,777, NDX +0.87% at 31,076, DJI +0.18% at 51,268, RUT +0.64% at 2,851 SECTORS: Materials +1.22%, Communication Services +1.14%, Energy +0.89%, Health +0.75%, Financials +0.73%, Technology +0.72%, Consumer Staples +0.64%, Utilities +0.34%, Consumer Discretionary +0.33%, Industrials +0.05%, Real Estate -0.44%. EUROPEAN CLOSES: Euro Stoxx 50 +0.04% at 6,241, Dax 40 +0.06% at 25,246, FTSE 100 +0.34% at 10,498, CAC 40 -0.80% at 7,834, FTSE MIB +0.66% at 50,818, IBEX 35 +1.12% at 19,300, PSI -0.66% at 9,354, SMI +0.35% at 13,709, AEX +0.64% at 1,124 STOCK SPECIFICS: Elon Musk confirmed TSMC (TSM) is in early discussions to join Terafab semiconductor project in Texas; Investors hoping Intel (INTC) would have Terafab all to itself. Bernstein & Citi recommend buying Western Digital (WDC) and Seagate (STX) after Friday’s selloff. Schneider Electric agreed to acquire PTC (PTC) for $205/shr in cash; PTC closed Fri. at $144.03/shr. Trump admin plans to offer Vistra (VST) c. $4bln in loans to upgrade three nuclear plants. Amprius (AMPX) awarded Caminus a contract to produce hundreds of thousands of drone batteries in 2027 C.H. Robinson (CHRW) agreed to acquire Rxo (RXO) for $30.25/shr. Insmed (INSM) announced CFO Sara Bonstein to step down. FX The Dollar Index was firmer on Monday, to the detriment of most G10 FX peers. Currency specific newsflow was light to start the week, and there was little move to a mixed ISM Services report. NZD, EUR, and CHF were the G10 laggards, while the Aussie was the clear outperformer and managed to eke out gains against the Greenback. The Yen initially saw strength, amid constructive commentary from PM Takaichi who essentially vowed for fiscal discipline. However, the Yen saw a bout of pressure following a BBG report which noted that Japan’s GPIF did not discuss allocation at its September meeting. To remind, there was some speculation that the GPIF could adjust its JGB allocation to the upper end of its 19-31% band (current target is c. 27%). Meanwhile, EUR saw pressure amid fiscal and political woes, as French Unions called for a nationwide day of strikes on November 5th, and the Spanish PM called for a snap election. In EMFX, the Brazilian Real soared on Bolsonaro's first-round election lead, and also Brazil interest rate futures move sharply lower. Senator Flavio Bolsonaro won Brazil’s first-round presidential vote with 47.03% vs President Lula da Silva’s 45.16%. A run-off will take place on 25th October. Bolsonaro’s Liberal Party also led congressional and regional results, with its campaign centring on crime, corruption, the economy and sovereignty, with Bolsonaro favouring closer US ties, and Lula defending stronger state-led social and industrial policies.