US MARKET WRAP: Stocks slide and yields reverse higher

SNAPSHOT: Equities down, Treasuries down, Crude up, Dollar flat/up, Gold flat REAR VIEW: US Treasury Secretary Bessent to announce economic actions on Iran on Monday that will "collapse the regime"; Bessent says long-end buyback increases could extend beyond $4B, depends on market conditions; US initial and continuing claims stay within YTD ranges; US Philly Fed beats expectations; Fed's Daly says policy in a good place, Musalem says policy is neutral or accommodative right now; Iranian Supreme Leader adviser Rezaei says "The best response to Trump's escalation of economic warfare is to withdraw from the NPT"; Strong US 30yr TIPS auction; US national debt surpasses $40tln; US EPA in consultation with DOE expands gasoline supply to lower prices at the pump; Aussie employment unexpectedly declines; WMT SSS and guidance underwhelms. COMING UP: Data: Global S&P PMIs Flash (Aug), Japanese Inflation (Jul), UK Retail Sales (Jul), PSNB (Jul), EU Negotiated Wage Growth (Q2), Canadian Retail Sales (Jun), EU Consumer Confidence Flash (Aug). Events: BoC SLOS (Q2). Speakers: RBA's Bullock. Credit Ratings: Fitch on Poland; Moody's on the Netherlands, Sweden. MARKET WRAP Stocks were lower on Thursday, with the Russell and Dow underperforming; the latter was weighed by Walmart (WMT), which slumped following its earnings report and weak guidance. Indices closed lower across the board with negative breadth, as the equal-weight S&P 500 (RSP) fell around 0.7%. Sectors were also predominantly lower, with Health Care, Consumer Staples and Consumer Discretionary lagging. Health Care gave back some of Wednesday's MRNA/MRK-induced gains, while Staples were weighed on by WMT. Energy and Real Estate were the only sectors to close in the green. Crude prices were firmer amid reports that the Houthis are preparing to enter a new phase of escalation against Saudi Arabia. Meanwhile, Iranian Supreme Leader adviser Rezaei said the best response to Trump's escalation of economic warfare would be to withdraw from the Nuclear Non-Proliferation Treaty, which legally commits Iran to maintaining a peaceful nuclear programme. US President Trump also reportedly told his team that the chances of reaching a deal with Iran are slim and ordered a freeze on talks for several weeks. Treasury yields rose across the curve, with the 30-year briefly returning to levels seen before Wednesday's Treasury buyback announcement. The belly and long end led the move higher, resulting in a steeper curve and reversing some of the flattening seen after the Treasury increased its long-end liquidity-support buybacks. Bessent also discussed the programme, confirming the "at least" language in Wednesday's announcement and suggesting buybacks could exceed USD 4bln per operation. In FX, the Dollar saw modest gains, although the move was relatively contained given the reversal higher in long-end Treasury yields and firmer crude prices. Higher yields weighed on the Yen and Swiss Franc, while the Aussie was pressured by a soft Australian jobs report overnight. Gold was broadly flat despite higher yields, while silver gained. Elsewhere, the PBoC set its daily Yuan reference rate weaker than expected following the currency's recent appreciation, although the fixing was close to the previous level. The PBoC set the USD/CNY midpoint at 6.7808 vs exp. 6.7196 (prev. 6.7854). US JOBLESS CLAIMS: Initial jobless claims fell to 206k in the week ending August 15th (exp. 210k, prev. 212k revised from 209k), below expectations and remaining at relatively low levels, while the four-week moving average rose to 204.0k from a revised 199.75k. Continuing claims (w/e August 8th) increased to 1.799mln (exp. 1.790mln, prev. 1.781mln revised from 1.777mln), while the insured unemployment rate was unchanged at 1.2%. In the unadjusted data, initial claims fell by 17,123 (-9.1%) to 172,080, a somewhat larger decline than seasonal factors had expected (-12,077, or -6.4%). Looking at the advance state breakdown, the largest declines were seen in Michigan (-2,408), South Carolina (-1,227), California (-1,202), Pennsylvania (-1,150), Kansas (-1,014), Georgia (-978), and Maryland (-936), while the largest increases were in Kentucky (+527), Ohio (+324), Alaska (+126), and Utah (+75). Overall, initial claims continue to suggest a relatively low pace of layoffs, although the rise in continuing claims points to some ongoing difficulty for unemployed workers finding new jobs. Oxford Economics notes demand for workers remains soft, but supply has weakened and the labour market remains roughly in balance. The consultancy also points out how continued claims have bounced around recently, but the four week moving average remains 8% below prior year levels. PHILLY FED: The Philadelphia Fed Manufacturing Index rose to 47.4 in August (exp. 25.0, prev. 41.4), its highest reading since April 2021, signalling continued strength in regional manufacturing activity. The details were generally robust, although New Orders eased to 30.1 (prev. 37.0) and Shipments fell to 27.7 (prev. 33.7), with both remaining above their long-run non-recession averages. Labour indicators strengthened notably, with Employment jumping to 27.9 (prev. 10.0), its highest since April 2022, while the Average Workweek rose to 26.5 (prev. 14.0). Price pressures moderated, with Prices Paid falling to 40.9 (prev. 53.9) and Prices Received declining to 17.7 (prev. 27.4), with both at their lowest levels since February but remaining elevated relative to historical averages. Looking ahead, expectations strengthened considerably, with Future Business Conditions surging to 73.6 (prev. 34.4), its highest since August 1983, while Future New Orders rose to 66.0 (prev. 35.1) and Future Shipments to 63.5 (prev. 39.3), both reaching their highest levels in more than five years. Note, almost 75% of firms expect an increase in activity (prev. 52%), while 1% expect a decrease (prev. 17%). Future CAPEX also jumped to 48.2 (prev. 30.1), its highest reading in 53 years. Overall, the survey points to strong manufacturing activity and increasingly optimistic expectations for growth and investment, alongside some moderation in current price pressures, although firms continue to anticipate elevated price pressures over the next six months. FED’s DALY (2027 voter) said the rise in long-term bond yields is a global issue which reduces its usefulness as a signal for the Fed; yields show the market understands the Fed’s reaction function. Daly avoided questions related to the recent US Treasury announcement, reiterating the Fed’s dual mandate goal, having the tools to achieve their ends. On consumers, the 2027 voter said they are still spending; however, it is slow, albeit not seeing anything fragile yet. Meanwhile, Daly noted policy is in a good place to keep watching the data, reiterated support for the July hold, and is not seeing signs of any worrisome dynamics forming ahead of the FOMC. On inflation, Daly said the modal outlook expects inflation pressures to fade, but notes that we could have further shocks in the future that could change that situation. Daly does not think it is correct to talk about the risks of higher inflation. On labour, Daly described the market as low-hire, low-fire and reiterated she doesn't see the job market contributing to inflation at the moment. FED'S MUSALEM (2028 voter): Said inflation expectations are anchored, and strong growth in investment is influencing the bond market. The non-voter added that, given current Fed rates, he sees a lower probability of getting inflation to 2%, and that the best thing the Fed can do for growth is get inflation back to 2%. The St. Louis President remarked that underlying inflation, excluding supply‑chain effects, sits between 2.5-3%, and that when you have supply shocks, you have to look at core inflation. Speaking on the Fed, said they want to maintain an open mind into every meeting, and will not offer a firm view on what he wants the Fed to do at the September confab. On monetary policy, said it is neutral or accommodative right now, and that financial conditions are pretty accommodative here. Musalem echoed the familiar rhetoric of the hawkish dissenters that hiking rates now could save more aggressive action later. FIXED INCOME T-NOTE FUTURES (U6) SETTLED 9 TICKS LOWER AT 108-16 Treasury yields rise as long end briefly pares post-buyback rally. At settlement, 2-year +2.1bps at 4.183%, 3-year +2.8bps at 4.264%, 5-year +4.3bps at 4.382%, 7-year +4.9bps at 4.524%, 10-year +5.1bps at 4.692%, 20-year +4.2bps at 5.218%, 30-year +4.0bps at 5.229%. THE DAY: Treasury yields rose across the curve on Thursday, with the 30-year briefly returning to levels seen before Wednesday's Treasury buyback announcement. The belly and long end led the move higher, resulting in a steeper curve and reversing some of the flattening seen following the Treasury's decision to increase long-end liquidity-support buybacks. Treasury futures briefly took another leg higher after US Treasury Secretary Bessent told CNBC that the upsized long-end buybacks could exceed USD 4bln per operation, consistent with the "at least" USD 4bln language announced on Wednesday. Bessent reiterated that the programme is intended to enhance liquidity in thinner areas of the curve, although he acknowledged that part of the move is about signalling. When asked what the Treasury could do if long-end yields continued to rise, Bessent said it has a large toolkit but provided little additional detail. Despite the initial move higher in futures during his remarks, the move subsequently reversed, with Treasuries settling lower across the curve. The reversal suggests the buyback announcement may help dampen pressure at the long end but, at least so far, has not fundamentally altered the underlying direction of yields - in fitting with remarks from ING on Wednesday. Elsewhere, Fed's Musalem reiterated that he favoured raising rates in July, arguing that hiking now could avoid the need for larger moves further down the line. Meanwhile, Fed's Daly reiterated that she favoured holding rates and believes policy is currently in a good place. Economic data were mixed, with Initial Jobless Claims remaining low, while Continuing Claims for the preceding week rose. The 30-year TIPS auction was strong again. The 1.8bp stop-through, above-average bid-to-cover, exceptionally strong indirect participation and very low dealer allocation pointed to very strong demand, with the substantially higher real yield on offer likely helping attract investors to long-end inflation-protected duration. Crude prices were also firmer amid reports that the Houthis are preparing to enter a new phase of escalation against Saudi Arabia. Meanwhile, Iranian Supreme Leader adviser Rezaei said the best response to Trump's escalation of economic warfare would be to withdraw from the Nuclear Non-Proliferation Treaty, which legally commits Iran to maintaining a peaceful nuclear programme. US President Trump also reportedly told his team that the chances of reaching a deal with Iran are slim and ordered a freeze on talks for several weeks. SUPPLY Notes/Bonds US to sell USD 69bln of 2-year notes on August 25th, USD 70bln of 5-yr notes on Aug. 26th, and USD 44bln of 7-yr notes on Aug. 27th; all to settle on Aug. 31st US sold USD 8bln of 30-year TIPS; stop-through 1.8bps Bills US sold 4-week bills at a high rate of 3.640%, B/C 2.84x; sold 8-week bills at a high rate of 3.655%, B/C 3.06x US to sell USD 92bln of 13-wk bills and USD 79bln of 26-wk bills on August 24th, USD 95bln of 6wk bills on Aug. 25th and USD 28bln of reopened 2yr FRN on Aug. 26th; all to settle on Aug. 27th. STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Sept 8.7bps (prev. 8.3bps), Dec 22.6bps (prev. 23.2bps) EFFR at 3.63% (prev. 3.63%), volumes at USD 95bln (prev. USD 89bln) on August 19th SOFR at 3.62% (prev. 3.65%), volumes at USD 2.923tln (prev. USD 3.01tln) on August 19th NY Fed RRP op demand at 0.23bln (prev. 0.32bln) across 1 counterparties (prev. 18) on August 20th NY Fed T-Bill Purchases (1-4 month): Accepts USD 4.24bln of USD 28.33bln offered; Offer-to-cover 6.68x Treasury Buyback [Liquidity support, 3-5yr nominal coupons, max USD 4bln]: Accepts USD 1.86bln of 10.159bln offers; Accepts 3/48 eligible issues. O/C 5.46x. CRUDE WTI (V6) SETTLED USD 2.44 HIGHER AT USD 86.83/BBL; BRENT (V6) SETTLED USD 2.16 HIGHER AT USD 93.78/BBL The crude complex was firmer on Thursday, as US/Iran relations show no sign of improving. WTI and Brent saw gains through the duration of the European morning to hit peaks of USD 87.69/bbl and USD 94.71/bbl, respectively, before coming off highs in the US session, albeit still remaining firmly in the green. US and Iran appear no closer to any sort of peace agreement or extended ceasefire, with Iranian Supreme Leader adviser Rezaei today noting "The best response to Trump's escalation of economic warfare is to withdraw from the NPT [Nuclear Non-Proliferation Treaty]". Following this, Al Arabiya, citing sources, reported that Trump "told his negotiating team that the chances of an agreement with Iran have become slim", and ordered a freeze on negotiations with Iran for several weeks. Note, benchmarks did see modest pressure on this, and it could be due to the fact it is strange that Arabic news would be getting sources from inside the Trump admin, and as such markets may have taken it with a pinch of salt. Moreover, in US Treasury Secretary Bessent's TV interview, he said he will hold a press conference on Monday to discuss actions regarding Iran, which he claims will collapse the regime, but details remain very light. The calendar on Friday is light, so participants await the weekly Baker Hughes rig count and any headline risk, albeit it has been a pretty quiet week. EQUITIES CLOSES: SPX -0.87% at 7,641, NDX -0.72% at 29,213, DJI -1.32% at 52,764, RUT -1.34% at 2,992 SECTORS: Consumer staples -1.93%, Health -1.89%, Consumer discretionary -1.77%, Industrials -1.22%, Financials -0.97%, Communication services -0.71%, Utilities -0.57%, Technology -0.39%, Materials flat, Real estate +0.15%, Energy +0.38% EUROPEAN CLOSES: Euro Stoxx 50 -0.37% at 6,421, Dax 40 -0.31% at 26,012, FTSE 100 +0.04% at 10,748, CAC 40 -0.57% at 8,453, FTSE MIB +0.09% at 52,666, IBEX 35 -0.18% at 19,811, PSI +0.48% at 9,283, SMI -0.13% at 14,368, AEX +0.03% at 1,103 STOCK SPECIFICS Coty (COTY): Sees weaker-than-expected next-quarter profit outlook and withholds FY guidance amid its business overhaul. Nordson (NDSN): Top and bottom line surpassed Wall Street expectations alongside raising FY outlook. Deere & Company (DE): EPS and revenue beat alongside lifting FY net income view. Walmart (WMT): Comparable sales light with next-quarter and FY profit outlook short. Microsoft (MSFT): Meta has quietly become one of Microsoft's largest AI customers. Etsy (ETSY): Rosenblatt Securities initiated coverage with a 'Buy' rating. Moderna (MRNA) gives up some of the huge gains seen on Wednesday. Bear Cave report on Guggenheim Strategic Opportunities Fund (GOF). Anthropic expects to match SpaceX's (SPCX) IPO size or top USD 1tln; preparing IPO filing as soon as the end of August. Nvidia (NVDA) intends to begin small-batch shipments of a China-tailored LPU by the end of 2026, reports The Information citing sources. FX DXY was slightly firmer today, albeit lagging the notable reversal in long-end US Treasury yields. Behind the mixed action in fixed income and FX could be reduced USD attractiveness from a yield standpoint, given the US Treasury’s apparent preference to cap the recent rise in yields, while its major peers have signalled no similar restraint. Meanwhile, US data showed continued stability in the labour market with initial claims still hovering around 200k; continuing claims rose but remained well within YTD ranges. Philly Fed beat, in what was a strong manufacturing report, helped by significantly improved expectations of future business conditions. Elsewhere, Fed speak saw Daly (2027 voter) note that policy is in a good place to keep watching the data, whilst Musalem (2028 voter) maintained the view that hiking rates now could save more aggressive action later and noted Super El Nino might be the next supply shock. Now, DXY trades around 98.89, still well below the pre-Treasury announcement level of 99.375. CHF and JPY lagged in the G10 FX space, as higher US yields widened rate differentials and weighed on the low-yielding haven currencies. Currency-specific newsflow was light for the havens. The continued rise in energy prices amid the lack of progress between the US and Iran may limit further strength in havens until a long-term resolution becomes clear. AUD/USD was weighed by a softer-than-expected employment reading. Australian employment unexpectedly declined 15.8k (exp. 15k, prev. 76.3k), weighed by a reversal in part-time employment -32.2k (prev. 47k). Consequently, the u/e rate ticked higher to 4.5% from 4.4%. AUD/USD hit lows of 0.71028.