Newsquawk US Market Wrap - Stocks mixed and yields rise despite soft PCE

SNAPSHOT: Equities mixed, Treasuries down, Crude up, Dollar up, Gold down. REAR VIEW: Softer-than-expected US PCE; US GDP revised higher; US Goods Trade Balance deficit widens; US ADP beats; Yemeni armed forces reportedly attacked Abqaiq oil city in eastern Saudi Arabia; Senior source said mediators conveyed Washington’s response to the Iranian Foreign Minister; EIA crude stocks show bigger-than-expected build; Softer-than-expected Aussie CPI. COMING UP: Data: Japanese Tankan Survey (Q3), Australian Trade Balance (Aug), Swiss CPI (Sep), US Challenger Job Cuts (Sep), Jobless Claims (Sep/26), ISM Manufacturing PMI (Sep), Atlanta Fed GDP (Q3) Events: BoJ SOO (Sep). Speakers: BoE's Bailey, Mann, Pill; ECB’s Cipollone, Lagarde, Schnabel; Fed’s Barkin, Collins, Schmid, Waller, Jefferson, Bowman, Cook, Williams, Logan; BoC's Rogers. Supply: Spain, France. Earnings: Accenture, McCormick, Nike MARKET WRAP Stocks were mixed on Wednesday, with notable Nasdaq outperformance, while the SPX saw mild gains, RUT was flat and DJI lower, with the equal-weight S&P also declining. The majority of sectors were lower, led by Consumer Staples, Health Care and Real Estate. Meanwhile, Technology and Communication Services rallied, supporting the broader indices given their weightings, largely led by gains in Apple (AAPL) and Alphabet (GOOGL). Attention turns to Micron (MU) earnings after-hours, with some choppy trade seen in late trade on account of month and quarter end. The macro highlight was US PCE, which was broadly softer than expected, although somewhat clouded by BEA methodology changes, with many expecting a downside surprise. The initial reaction was dovish but ultimately faded. Q2 GDP was also stronger than expected, while the Goods Trade Balance deficit widened in August, led by further capital goods imports amid strong AI-related demand. ADP private payrolls also topped expectations. The yield curve bear steepened, with front-end yields relatively anchored while the long end rose. Yields initially fell following the soft PCE report but swiftly pared the move. Money markets continued to pare Fed hike bets, with the probability of an October hike falling back to around 40% following Williams' commentary on Tuesday and Wednesday's PCE report. Goldman Sachs pushed back its next Fed hike call to December from October following the data. In FX, the Dollar was ultimately little changed, while the Aussie lagged following softer-than-expected inflation data. Oil prices settled higher amid little progress in US-Iran diplomacy, while the Yemeni Houthis reportedly struck the Saudi Abqaiq oil facility, with any impact on production still unclear. Gold initially rallied following the PCE data but tumbled into settlement as the initial dovish reaction faded and long-end US yields rose. Attention on Thursday turns largely to the ISM Manufacturing PMI following the strong preliminary S&P Global PMI earlier in the month, before all eyes turn to Friday's NFP report. US PCE: The August PCE report was soft with downward revisions, although largely due to methodology changes. Core PCE rose 0.2% M/M, cooling from 0.4% and below the 0.3% consensus, while the Y/Y rate was unchanged at 3.0%, below the 3.3% forecast, with the prior revised down from 3.3%. Headline PCE rose 0.3% M/M, accelerating from 0.1% but below the 0.4% forecast, while the Y/Y rate was unchanged at 3.4%, below the 3.7% forecast, with the prior revised down from 3.7%. Within the report, PCE services prices ex-energy and housing accelerated to 0.4% from 0.1%, while goods prices rose just 0.03%. The softer headline figures are welcome for the Fed, although Oxford Economics highlights that the annual NIPA update revealed a larger-than-expected downward revision to core PCE inflation due to methodological changes affecting software and accessories, portfolio management, and legal services. The consultancy notes that while the revisions ease core PCE inflation at the margin, they do not erase Fed concerns around a broadening of inflation pressures from supply shocks, including the Middle East, the AI investment boom and tariffs. The downward revision was concentrated in portfolio management and investment advice fees, which OxEco suggests should not be given too much weight from the Fed's perspective. Indeed, the Fed tends to look through inflation tied to financial services and instead places greater emphasis on market-based PCE, which accelerated to 0.4% M/M from 0.1%, while the core market-based measure rose 0.3% from 0.1%. Elsewhere, Personal Income rose just 0.2%, below the 0.5% forecast and prior 0.3%, while consumption accelerated to 0.6% from 0.1%. Nonetheless, the report saw markets further pare hawkish Fed bets following Williams' remarks on Tuesday. ADP: The US ADP private payroll report was strong in September, rising 90k from 38k and above the 70k forecast, pointing to solid private-sector hiring. The report noted that hiring accelerated for the first time since May, with gains led by Education & Health Care and Leisure & Hospitality, while Financial Activities and Professional & Business Services showed weakness. The Pay Insights data showed gross pay growth was little changed. Median Y/Y pay growth for all workers was 4.7%, matching the prior month's pace, while pay growth for job stayers was unchanged at 4.4% and slowed marginally for job changers to 7.3% from 7.4%. Despite the strong report, Pantheon Macroeconomics said it “provides little reason to alter expectations for Friday's official payrolls report”, noting that the relationship between ADP employment and the BLS NFP report is unreliable. ADVANCED GOODS TRADE BALANCE: US advanced goods trade balance rose 11.5% in August to a deficit of USD 132.6bln from USD 118.9bln, and deeper than the expected deficit of USD 115bln. Exports of goods were USD 203.4bln, +USD 3.7bln M/M, while imports of goods jumped USD 17.4bln M/M to USD 336.1bln. The net deficit widened to its largest level since Q1 2025. For imports, Capital Goods was the largest category and printed USD 145.84bln (vs. USD 140.26bln in July) amid ongoing strong demand for AI, while industrial supplies imports, a category that includes oil and petroleum products, surged by 16% last month; Oxford Economics writes that the possibility of a diesel export ban remains a risk for further widening of the trade deficit in the near term. Overall, Oxford thinks the August advanced goods data points to a 3ppt drag from net trade on Q3 GDP. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 7 TICKS LOWER AT 104-06+ Yield curve bear steepens despite soft PCE data. At settlement, 2-year +1.0bps at 4.889%, 3-year +2.6bps at 4.998%, 5-year +4.5bps at 5.093%, 7-year +5.7bps at 5.198%, 10-year +6.1bps at 5.295%, 20-year +7.2bps at 5.691%, 30-year +7.5bps at 5.641%. THE DAY: Treasury yields rose across the curve on Wednesday, with the long end leading the move to see the curve bear steepen. There was plenty of data to digest, with yields initially rising after ADP private payrolls increased 90k in September, above the prior 38k and 70k forecast, pointing to solid private-sector hiring. The move swiftly pared, however, with participants cognisant of the historically weak relationship between ADP and Friday's official NFP report. Shortly after, August PCE and final Q2 GDP data were released. PCE was soft, with prior figures revised lower, although much of the softness reflected well-documented BEA methodology changes affecting software and accessories, portfolio management, and legal services. Yields initially fell across the curve before swiftly paring the move. Oxford Economics noted the report is unlikely to prevent the Fed from hiking again, highlighting that the Fed tends to look through inflation tied to financial services and instead places greater emphasis on market-based PCE, which accelerated to 0.4% M/M from 0.1%, while the core market-based measure rose 0.3% from 0.1%. Final Q2 GDP growth was revised higher to 2.2% from 2.1%, despite expectations for a revision down to 1.5%, while consumer spending accelerated to 3.8% from 0.5%, above the 3.4% forecast, pointing to a robust consumer. Many Fed speakers were scheduled but little new was said, while following the data Goldman Sachs pushed back its next Fed hike forecast to December from October. On geopolitics, oil prices climbed throughout the session amid supply concerns after the Houthis reportedly hit the Saudi Abqaiq oil city, although front-end yields remained relatively anchored despite the rise in energy prices. Money markets pared hawkish Fed bets further, with October pricing falling to 9.8bps from 12.9bps and December to 30.6bps from 33.6bps. Supply Bills STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Oct 9.8bps (prev. 12.9bps), Dec 30.6bps (prev. 33.6bps) EFFR at 3.88% (prev. 3.88%), volumes at USD 111bln (prev. USD 110bln) on September 29th SOFR at 3.88% (prev. 3.90%), volumes at USD 2.967tln (prev. USD 2.964tln) on September 29th NY Fed RRP op demand at 11.54bln (prev. 11.45bln) across 18 counterparties (prev. 10) on September 30th US Treasury announced it will buyback USD 6bln of 10-20year bonds on Thursday, matching the prior size. CRUDE WTI (X6) SETTLED USD 1.04 HIGHER AT 90.42/BBL; BRENT (Z6) SETTLED USD 1.87 HIGHER AT 98.03/BBL The crude complex saw gains, recovering earlier losses, amid seemingly little progress on US-Iran talks while the Abqaiq oil city in Saudi Arabia was attacked by the Houthis. WTI and Brent hit lows of USD 88.58/bbl and USD 95.12/bbl, respectively, in the European morning as they initially extended Tuesday's losses. However, benchmarks soon reversed, with some citing the FlyDubai incident as the initial catalyst, although it was later reported to involve a rogue pilot who was tackled by other pilots and passengers. There was otherwise little headline-specific news at the time to explain the recovery despite plenty of geopolitical newsflow, although it was later reported that the Houthis attacked the Abqaiq oil city in eastern Saudi Arabia during the afternoon. Trump reiterated that developments regarding Iran will be seen very soon and said there have been historic flows of oil out of Hormuz over the past three days. On the supply front, sources suggested OPEC+ producers are set to keep output targets unchanged at Sunday's meeting. Meanwhile, in the weekly EIA data, crude stocks saw a slightly larger build than expected, while both distillates and gasoline posted larger-than-expected draws. Overall, weekly crude production rose 16k BPD W/W to 13.955mln BPD. Meanwhile, many were reporting the Kpler data that showed crude oil exports from the Strait of Hormuz has basically returned to levels seen before the Iran war, thanks to US military escorts boosting shipments and pipelines redirecting flows. Kpler noted that crude transiting the Straight reached a seven-day average of 13.5mln BPD as of Monday. Regarding the Middle East as a whole, including the Red Sea and Persian Gulf, Kper data found shipments are sometimes higher than pre war levels - reaching a seven-day average of 19.5mln BPD, above the pre-war baseline of 17mln BPD. However, JPMorgan emphasised although crude shipments have normalised, refined product supplies remain constrained. EQUITIES CLOSES: SPX -0.20% at 7,656, NDX +0.23% at 30,409, DJI -0.86% at 50,909, RUT -0.38% at 2,797. SECTORS: Technology +0.66%, Consumer Discretionary +0.15%, Energy +0.09%, Communication Services +0.02%, Utilities -0.69%, Materials -0.79%, Financials -1.13%, Industrials -1.25%, Health -1.26%, Real Estate -1.26%, Consumer Staples -1.63%. EUROPEAN CLOSES: Euro Stoxx 50 -0.83% at 6,268, Dax 40 -0.74% at 25,211, FTSE 100 -0.29% at 10,606, CAC 40 -0.89% at 7,965, FTSE MIB -0.84% at 51,372, IBEX 35 -0.45% at 19,431, PSI +0.01% at 9,667, SMI -0.66% at 13,820, AEX -0.47% at 1,115 STOCK SPECIFICS: Concentrix (CNXC) revenue missed with next quarter guidance light as was FY revenue view Hewlett Packard Enterprise (HPE) secures first AMD Helios order in $1.2bln deal w/ Vultr. FactSet (FDS) FY profit view underwhelmed Jacobs (J) to deploy data center digital twin for Nvidia's R&D facility in the US. Target (TGT) was upgraded at HSBC Moderna (MRNA) was downgraded at Citi Boeing (BA) won a USD 20bln+ F/A-XX contract Cal-Maine Foods (CALM) deeper loss per shr. than exp. & rev. missed. Eli Lilly's (LLY) EloraTZP delivered greater weight loss and A1C reduction vs. tirzepatide 15 mg in adults with obesity and type 2 diabetes FX The Dollar Index was more-or-less unchanged on Wednesday, despite seeing a bout of pressure following the cooler-than-expected US PCE report, although the signal was somewhat clouded by the BEA methodology changes. Following the dovish remarks from Fed's Williams on Tuesday and the soft PCE report, money markets now see around a 40% chance of a 25bps hike in October, versus roughly 70% prior to his remarks. Elsewhere, ADP private payrolls rose above expectations, while the advanced goods trade deficit was wider than expected and deteriorated M/M. There was little Fed speak of note. G10 FX was largely in the red against the Dollar, although the Pound was the clear outperformer and eked out gains, while the Aussie lagged. AUD was pressured by cooler-than-expected Australian CPI. Sterling saw modest strength following an upward revision to Q2 GDP, although the details were somewhat more mixed than the headline suggested, with output and services revised higher but production revised lower. JPY, EUR, NZD, CHF and CAD all saw losses to varying degrees, albeit with little currency-specific newsflow. The Euro had seen marginal strength during the European morning as it digested inflation metrics from across the bloc, before ultimately fading.