US Market Wrap: Dovish Waller sends stocks and bonds higher

Dovish Waller sends stocks and bonds higher SNAPSHOT: Equities up, Treasuries up, Crude up, Dollar down, Gold up REAR VIEW: Waller leans dovish; ISM Services PMI tops expectations; US initial and continuing jobless claims little changed; BoJ reportedly favouring 25bps hike and a flexible future pace; Houthis launched a large-scale offensive on all fronts along the western coast; Hotter-than-expected Swiss CPI; AVGO rev. guide misses; SNOW surges on earnings beat. COMING UP: Data: German Factory Orders (Jul), EZ Retail Sales (Jul), US Jobs Report (Aug), Canadian Jobs Report (Aug). Speakers: BoE Governor Bailey; ECB’s Lane. Supply: Australia. MARKET WRAP US indices rallied on Thursday, with gains broad-based, although the Nasdaq outperformed. Sectors predominantly finished in the green, led by Consumer Discretionary, Communication Services and Financials, while Technology also rallied. Materials and Energy were the only sectors to close lower. T-notes were firmer across the curve, particularly at the front end, after dovish remarks from Fed Governor Waller, who kept the door open to a September hold following hawkish commentary from Chair Warsh last week. The influential Governor was optimistic on inflation, noting that if disinflation continues, he would support holding rates steady at the next meeting. However, he cautioned that a hot inflation print would see him consider a hike. The remarks saw money markets pare back September rate-hike bets, with markets now pricing the decision as roughly a coin toss. However, key risks remain ahead, including Friday's NFP report and next week's CPI and PPI data, which should help cement expectations for the September FOMC. In response to the shift in Fed pricing, the Dollar was sold and underperformed, while the Yen outperformed amid ongoing intervention speculation. CHF gained after hot inflation this morning. The dovish shift in rate expectations also supported Gold and Silver. Elsewhere, US data showed jobless claims remaining low and stable, while the ISM Services PMI beat expectations, although the prices component accelerated and employment was little changed. Meanwhile, Challenger job cuts accelerated M/M but declined Y/Y. Crude prices were bid, albeit with few fresh catalysts. The NY Post reported that Oman has quietly rejected Iran's request to jointly charge service fees on commercial ships passing through the Strait of Hormuz, following threats from US President Trump. Meanwhile, the Houthis reportedly launched a large-scale offensive across multiple fronts along the western coast, according to Sky News Arabia citing Yemeni military sources. US FED'S WALLER: The Fed Governor came in dovish, showing a preference to hold rates over hiking in September, "to support holding rates steady" if Aug inflation data shows continued progress vs. if inflation comes in hot, "would consider a hike". Waller holds an optimistic view on inflation, saying he sees signs of disinflation, adding that underlying inflation is doing better than the core numbers suggest, and whilst he sees "some" upside risk to inflation, he claims wage growth is consistent with inflation returning to 2%. Waller noted that they can give disinflation a chance: "There is little cost to waiting one meeting". On inflation gauges, he said he focuses on core inflation as the headline tends to be a bit noisy, and both headline and core PCE are not the best guide for where inflation is. On August inflation, he said he doesn't want to put any numbers on it, but if the 3-month number gets to 2.8, that is fine. That said, he suggested it may not take much inflation acceleration to support tighter policy. ISM: Services PMI rose to 55.4 from 54.1, above the expected 54.1. Employment rose to 47.8 from 47.4, but shy of the forecasted 48.3, while new orders jumped to 60.9 (exp. 56.0, prev. 57.2) and business activity to 61.7 from 59.1. The inflationary gauge of prices rose to 72.3 from 70.3. Supplier Deliveries dipped to 51.3 (prev. 52.8), while inventories and backlog rose to 56.7 (prev. 51.4) and 55.6 (prev. 50.9). In the respondents' survey, tariffs and the Middle East conflict returned as the most cited issues impacting respondents’ supply chains, but encouragingly there was a slight reduction in the share of companies cutting staff levels. The rise in the headline confirms that activity in the service sector remains solid, and Oxford Economics writes that lagging employment is consistent with their view that the economy is in a mostly jobless expansion. With the prices index lifting back to its highest level since August 2022, alongside the simultaneous uptick in order backlogs, it suggests that broader supply chain stress, in addition to elevated energy prices, is contributing to price pressures. CHALLENGER LAYOFFS (AUG): Challenger layoffs rose to 52,881 in August, up from 33,429 job cuts in July, marking the lowest August total since 2022. Consumer Products led all sectors with 10,057 cuts, driven by announcements at Procter & Gamble and Estée Lauder, while Tech "only" announced 6,103, its lowest monthly total in 2026 to date. Overall, Technology leads all industries with 155,126 cuts announced YTD, followed by Transportation with 42,279, and Health Care/Products with 35,637. In August, restructuring led all reasons for layoffs, and for the first time since February, AI did not lead. Challenger writes, “What they’d like to see with low layoffs is an increase in hiring activity. While companies are making plans to hire more workers than last year, according to our numbers, it doesn’t appear those positions are being filled quickly”. Employers announced plans to hire 12,325 workers in August (prev. 16,095 in July), and Challenger added that employers are making plans to add workers, with 46% of those plans coming from manufacturing industries. The questions are: how long will it take employers to actually fill these roles, and will they find workers with the requisite skills. JOBLESS CLAIMS: Initial jobless claims (w/e Aug 29th) ticked marginally higher to 206k from 204k, broadly in line with the expected 205k. As a result, the 4-wk average edged up to 207.25k from 205.75k. Continuing claims (w/e Aug 22nd) printed 1.779mln from 1.771mln. For initial claims, the unadjusted figure was 170,626, unchanged W/W, while the seasonal factors had expected a decline of 0.7% W/W, or 1.2k. The breakdown for the unadjusted figures saw the largest gains in New York (4,566), Hawaii (482), and California (431), with the largest decreases in New Jersey (-915), Pennsylvania (-599), and Ohio (-571). Overall, the numbers are consistent with recent averages and are consistent with an unchanged low unemployment rate in August. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 8 TICKS HIGHER AT 107-21 T-notes rally across the curve after Waller keeps September hold in play. At settlement, 2-year -3.7bps at 4.334%, 3-year -3.1bps at 4.405%, 5-year -2.5bps at 4.511%, 7-year -2.4bps at 4.627%, 10-year -1.6bps at 4.764%, 20-year -2.0bps at 5.244%, 30-year -1.6bps at 5.244%. THE DAY: The Treasury curve bull steepened on Thursday, predominantly in response to a dovish set of remarks from Fed Governor Waller. Governor Waller said he would support holding the policy rate steady at the September FOMC if the August inflation data, due next week, shows continued progress. In the Q&A, he added that the Fed can afford to wait one meeting to give disinflation a chance. The remarks saw money markets move back towards a 50/50 split between a September hike and hold, unwinding some of the hawkish repricing seen after Chair Warsh last week, when he said the Fed has more work to do unless officials are confident underlying inflation is moving towards the 2% goal. Markets had priced a near-70% probability of a September hike earlier this week following Warsh's remarks and the latest US-Iran escalation. Although Waller's comments were dovish, his view remains heavily dependent on next week's inflation data; he warned that a hot print could warrant a rate hike, but said he is optimistic on inflation and is seeing signs of disinflation. Elsewhere, oil prices extended recent gains, perhaps limiting some of the rally in Treasuries, amid reports that the Houthis had launched a large-scale offensive on multiple fronts along the western coast, according to Sky, citing sources. Meanwhile, Oman reportedly rejected Iran's request to jointly charge service fees on commercial ships passing through the Strait of Hormuz, following threats from US President Trump. Away from Waller, US data saw the ISM Services PMI beat expectations, although the prices component accelerated while employment was little changed. Jobless claims remained low, while Challenger layoffs accelerated and the US trade deficit widened, albeit by slightly less than expected. Attention now turns to Friday's Nonfarm Payrolls report for further direction on September Fed expectations, before the focus shifts to US CPI and PPI next week. SUPPLY Notes US to sell USD 58bln of 3-year notes on September 8th, USD 39bln of 10-year notes on September 9th and USD 22bln of 30-year bonds on September 10th; all to settle September 15th Bills US sold 4-week bills at a high rate of 3.700%, B/C 2.97x; sold 8-week bills at a high rate of 3.750%, B/C 3.02x US to sell USD 75bln of 6-week bills, USD 92bln of 13-week bills, USD 79bln of 26-week bills, on September 8th; all to settle Sept 10th. STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Sept 12.6bps (prev. 16.1bps), Dec 32.5bps (prev. 38.4bps). EFFR at 3.63% (prev. 3.63%), volumes at USD 114bln (prev. USD 114bln) on September 2nd SOFR at 3.65% (prev. 3.66%), volumes at USD 2.882tln (prev. USD 2.912tln) on September 2nd NY Fed RRP op demand at 0.70bln (prev. 0.53bln) across 4 counterparties (prev. 1) on September 3rd Treasury Buyback [Cash management, 1mth to 2yr, max USD 12.5bln]: Accepts USD 12.5bln of 28.272bln offers; Accepts 24/45 eligible issues CRUDE WTI (V6) SETTLED USD 0.29 HIGHER AT USD 91.30/BBL; BRENT (X6) SETTLED USD 0.11 LOWER AT USD 95.52/BBL The crude complex settled mixed, seeing two-way action through the session. Overnight and through the European morning, WTI and Brent ground lower to hit troughs of USD 89.57/bbl and 94.03/bbl, respectively, after Russian President Putin remarked that Russia and Ukraine should agree first and that there is an opportunity to reach a peace agreement. Adding to geopolitical risk, Houthis have launched a large-scale offensive on all fronts along the western coast, according to Sky News Arabia, citing Yemeni military sources. Thereafter, benchmarks pared all losses to move to highs, but with no headline catalyst behind the moves, as Middle East headlines, for a change, were light. The main macro driver on Thursday was dovish comments from the influential Fed Governor Waller, who remarked he supports holding the policy rate steady at the September FOMC meeting if August inflation data shows continued progress. A muted reaction was seen in response to an NYP report that Oman has quietly rejected Iran’s request to jointly charge service fees on commercial ships in the Strait of Hormuz. Elsewhere, Russian Deputy PM Novak said OPEC's role in the market remains important and will continue to exert significant influence on the oil market because of its high output. As a reminder, sources on Wednesday reported that the OPEC+ meeting on Sunday will not make any oil output policy decisions and will focus on discussing market conditions. EQUITIES CLOSES: SPX +1.06% at 7,748, NDX +1.16% at 29,482, DJI +1.18% at 53,691, RUT +0.51% at 2,968 SECTORS: Energy -0.72%, Materials -0.46%, Consumer staples flat, Health +0.19%, Utilities +0.85%, Industrials +1.04%, Technology +1.25%, Real estate +1.26%, Communication services +1.51%, Financials +1.55%, Consumer discretionary +1.58% EUROPEAN CLOSES: Euro Stoxx 50 +0.27% at 6,379, DAX +0.65% at 26,008, CAC 40 +0.07% at 8,286, FTSE 100 +0.70% at 10,832, SMI +0.22% at 14,395, FTSE MIB +0.88% at 52,245, IBEX 35 +1.12% at 20,000, PSI -0.04% at 9,402, AEX +0.09% at 1,105. STOCK SPECIFICS: Microsoft (MSFT) will begin disclosing quarterly Azure sales. Broadcom (AVGO): Next Q rev. & margin outlooks light, outweighing stronger Q results & raised longer-term AI rev. forecast. Hewlett Packard Enterprise (HPE): Solid results & lifted outlook but a FY27 earnings growth view miss, and persistent supply constraints, particularly in memory & other components, weigh. Snowflake (SNOW): Strong Q metrics alongside raising FY rev. & margin outlook. PVH (PVH): Top & bottom line surpassed Wall St. exp. Ciena (CIEN): EPS & rev. beat w/ solid FY top line outlook. Victoria's Secret (VSXY): Rev. slightly missed. Campbell's (CPB): Top & bottom line slightly short, cut Q div. & guided FY27 below est. Tyson Foods (TSN) cuts its FY26 revenue outlook to +1.5-2% (prev. +2.5-3.5%), citing additional pressure in its beef segment in Q4. Cliffwater Private Credit fund sees 16% redemption requests. FX USD was broadly weaker against peers, weighed by Fed Governor Waller's speech dampening Sept hike bets. Also, additional Yen strength following intervention speculation on Wednesday added further pressure to the DXY. Back to the Fed, Waller showed an inclination towards holding over hiking in September, "to support holding rates steady" if Aug inflation data shows continued progress vs. if inflation comes in hot, "would consider a hike". Waller's inflation outlook is benign when compared to the hawkish dissenters. He only sees "some" upside risk to inflation, with wage growth consistent for him with an inflation return to 2%. He's also willing to allow for another pause to allow for disinflation, citing little cost to waiting one meeting. DXY has largely erased last week's gains, as money markets return to pricing 50/50 of a hold/hike in September. US data saw the ISM Services PMI beat expectations, while the prices component accelerated further, with employment little changed. Initial and continuing claims confirmed a low-layoff environment, further highlighted by the Challenger Layoffs in August printing 52,881, -39% Y/Y. Ahead of NFP on Friday (exp. +56k), Revelio Labs Nonfarm Payrolls came in at +36.5k. Havens JPY and CHF were the best performers on Thursday. The former, boosted by optimism over MOF support for the currency, saw USD/JPY hit lows of 155.30 against a Wednesday high of 160.39. Meanwhile, the CHF was supported by a hotter-than-expected August CPI reading, +0.8% Y/Y (exp. 0.5%, prev. 0.4%), +0.4% M/M (exp. 0.0%, prev. -0.1%). USD/CHF hit lows of 0.8052 before trimming to 0.8076. CHF/JPY dropped to 192.12, a level last seen in November 2025.