US Market Wrap: Tech lags in wider-stock rally

SNAPSHOT: Equities mixed, Treasuries flattens, Crude down, Dollar down, Gold down. REAR VIEW: Reports suggest a compromise proposal meets the demands of both the US and Iran, implying progress, although later sources rejected claims that a US-Iran deal is close; Iranian officials say they cannot gain US trust until seven conditions are met; US Pending Home Sales sink in September, Building Permits slightly above forecasts; BoJ is reportedly likely to keep rates unchanged in October but may signal that a rate hike could come in December; UK unemployment rate unexpectedly declines; Germany's ZEW falls more than expected; GM shares fall on FY profit outlook miss. COMING UP: Data: Japanese Trade Balance (Sep), UK CPI (Sep), NZ CPI (Q3). Speakers: BoE Governor Bailey; ECB's Lane, Cipollone, Lagarde. Supply: Australia, US. Earnings: Abbott, NextEra, CME, AT&T, Tesla, IBM, Meta, Texas Instruments, SAP, Iberdrola, Puig. MARKET WRAP Stocks climbed as breadth outside of AI-related names was strong, with Healthcare setting fresh YTD highs. Other gains were seen in Utilities, Financials and Consumer Discretionary. Meanwhile, Communications underperformed on Alphabet and Meta weakness, whilst Tech saw marginal losses. The lackluster performance in AI names amid the broad rally, likely explains the continued bid for US Treasuries, as concerns remain over AI-exposed debt. Short-end yields, however, were modestly firmer, leaving the curve flatter. Oil prices settled lower on reports that a Qatar-Pakistan proposal presented to Iranian officials today has US approval and had previously been accepted by Iran. The proposal includes a compromise from both sides on the nuclear issue and frozen Iranian funds. Crude prices fell sharply as the report got wider airing, before paring some of the losses on a counter-report citing a diplomat close to the talks, who said that Iran and US talks continue and that reports the deal is close are wrong. In FX, the dollar was weighed on by downside in US yields, leaving major peers firmer. GBP outperformed following an unexpected decline in the unemployment rate. Precious metals were mixed: gold saw losses despite the lower yield environment, while silver gained. US data included a huge 7.3% decline in Pending Home Sales to the lowest level on record, as higher mortgage rates remain a barrier to a pickup in housing activity; Building Permits were little changed in September. Elsewhere, the Atlanta Fed revised its GDPNow Q3 real GDP growth estimate lower to 3.5% from 3.6%. US PENDING HOME SALES: Pending Home Sales tumbled 7.3% M/M in September (exp. -0.5%), with M/M sales declining in all four major US regions. Market conditions continued to weaken amid fast-rising mortgage rates, with housing affordability highly sensitive to mortgage rates. NAR Chief Economist Yun said, "Given that mortgage rates have already risen much more than the Federal Reserve's short-term interest rate hikes, mortgage rates could be topping out", although energy prices and the resulting inflationary reaction remain highly uncertain. Yun added, "Despite the difficulty of obtaining a mortgage, the limited number of distressed properties is ensuring steady home prices, buyers and sellers may simply be holding back until mortgage rates move favorably." * HOUSING STARTS/BUILDING PERMITS: Housing Starts fell 5.2% M/M in September to 1.221mln (exp. 1.300mln, prev. 1.288mln), while Building Permits dipped 0.2% to 1.400mln (exp. 1.390mln, prev. 1.403mln), but were above expectations. For Starts, single-family dropped 4.6% to 859k (prev. 900k), with multi-family also falling 6.7% to 349k. Looking at permits, single-family authorisations declined 4% to 845k, with multi-family printing 503k. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 2 TICKS HIGHER AT 105-10 Treasury curve flattens as AI debt concerns keep the flight-to-haven trade in play. At settlement, 2-year +0.9bps at 4.787%, 3-year +0.4bps at 4.872%, 5-year -1.1bps at 4.936%, 7-year -2.3bps at 5.021%, 10-year -2.3bps at 5.119%, 20-year -4.9bps at 5.479%, 30-year -5.0bps at 5.426%. THE DAY: The Treasury curve was flatter. Whilst breadth was encouraging in US equities, the lacklustre tech performance reflects continued concern surrounding AI debt and, as such, gives investors further reason to increase exposure to USTs. That said, the short end was sold, leaving front-end yields modestly higher despite the slight decline in oil prices on optimism over a potential US-Iran deal. A clear driver of the 2/3yr upside was lacking, but with markets still favouring a hold at next week's FOMC, repricing may have been at play. Additionally, even if a US-Iran deal were reached imminently, resolving the refined product shortage is not an overnight fix, as repairing refineries and building extra capacity can take months/years. US data included a huge 7.3% decline in Pending Home Sales to the lowest level on record, as higher mortgage rates remain a barrier to a pickup in housing activity; Building Permits were little changed in September, as expected. Today, the Atlanta Fed revised its GDPNow Q3 real GDP growth estimate lower to 3.5% from 3.6%. Supply US sold 6-week bills at a high rate of 3.975%, B/C 2.74x US to sell USD 75bln of 17-week bills on October 21st, and USD 105bln of 8-week bills and USD 110bln of 4-week bills on October 22nd; all to settle on October 27th STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Oct 4.3bps (prev. 4.3bps), Dec 25.8bps (prev. 26.0bps) EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 115bln) on October 19th SOFR at 3.87% (prev. 3.88%), volumes at USD 2.888tln (prev. USD 2.925tln) on October 19th NY Fed RRP op demand at USD 0.227bln (prev. USD 0.330bln) across 3 counterparties (prev. 7) on October 20th CRUDE WTI (Z6) SETTLED USD 0.72 LOWER AT 97.82/BBL; BRENT (X6) SETTLED USD 0.76 LOWER AT USD 108.78/BBL The crude complex was lower, albeit in choppy trade, as constructive Middle East headlines dominated price action. WTI and Brent hit highs of USD 101.37/bbl and USD 111.99/bbl, respectively, in US pre-market trade, before pulling back on an Al Araby Al Jadeed report, which said Qatar and Pakistan presented a proposal to Iranian officials today that has US approval and had previously received Iranian approval. As the report got wider airing on other outlets, the oil downside notably extended, with WTI hitting a trough of USD 95.25/bbl and Brent a low of USD 105.95/bbl. However, reports, citing an official close to the talks, noted that talks between Iran and the US continue and that reports the deal is close are wrong, which allowed crude to pare some of the move. Later, the Iranian President said that for any negotiation, the pressures, threats and sanctions must first be lifted. After-hours attention turns to the weekly private inventory metrics. EQUITIES CLOSES: SPX +0.28% at 7,713, NDX -0.13% at 29,490, DJI +1.02% at 52,497, RUT +1.67% at 2,774 SECTORS: Communication services -0.89%, Technology -0.34%, Industrials flat, Energy +0.18%, Consumer staples +0.28%, Materials +0.31%, Consumer discretionary +0.72%, Financials +1.14%, Utilities +1.15%, Real estate +1.7%, Health +2.34%. EUROPEAN CLOSES: Euro Stoxx 50 -0.33% at 6,125, Dax 40 -0.05% at 25,307, FTSE 100 -0.29% at 10,733, CAC 40 -0.38% at 7,838, FTSE MIB -0.03% at 49,071, IBEX 35 +0.28% at 19,092, PSI -0.67% at 9,331, SMI +0.76% at 14,478, AEX -0.68% at 1,134. STOCK SPECIFICS: 3M (MMM): Profit beat and lifted FY EPS guidance. RTX (RTX): Top and bottom lines beat expectations, with a strong outlook. Steel Dynamics (STLD): EPS and revenue fell short of Wall Street consensus. Solstice Advanced Materials (SOLS): Starboard Value has built a stake worth several hundred million dollars. MSCI (MSCI): Revenue beat. General Motors (GM): Announced a USD 20bln share repurchase programme. Crown Holdings (CCK): Weak next-quarter profit outlook. Equifax (EFX): Solid Q3 results. Halliburton (HAL): EPS and revenue topped Wall Street expectations. Apple (AAPL): Downgraded at Loop Capital. CoreWeave (CRWV): 'Reduce' rating reiterated at HSBC. Braze (BRZE): To be acquired by Salesforce (CRM) for c. USD 5.66bln in enterprise value, with shareholders to receive USD 47.50/shr in cash. Casella Waste Systems (CWST): Jana Partners has built a stake and urged management to improve margins and returns on capital. Qiagen (QGEN): EQT is reportedly in advanced talks to acquire the company. FX The Dollar Index was lower on Tuesday, seemingly hit by broader risk sentiment as US equities marched higher despite flattish AI names, alongside more encouraging developments out of the Middle East, although these were later denied. On the data front, US Pending Home Sales for September tumbled much more than expected, continuing to highlight the US housing market's struggles given current mortgage rates, which risk moving higher given current energy prices and their potential knock-on effect on inflation. G10 FX peers were firmer across the board against the Dollar, as, while the aforementioned broader market conditions helped, some currency-specific catalysts also aided. The Pound, the outperformer, was supported by the better-than-expected UK unemployment figure. On the central bank front, BoE's Greene said she continues to believe the Bank should proactively lean against the risk of second-round inflation effects, adding that this risk is greater than previously thought. Cable traded between 1.3295-1.3409. Elsewhere, sources overnight said the BoJ is likely to keep rates unchanged in October but may signal that a rate hike could come in December; the Bank may also raise its FY27 inflation forecast slightly. Overall, the report does little to shift market expectations, and at the time of writing, money markets assign only a 5% chance of a hike in October and c. 80% in December. In Europe, the German ZEW Economic Sentiment Index for October disappointed, with the headline coming in at 28.1, below the expected 30.0 and the prior 34.7. Finally, there was little reaction in the HUF after the NBH left rates unchanged at 5.50%, as expected. In post-decision comments, the NBH said it is committed to achieving the inflation target in a sustainable manner.