US Market Wrap: Stocks mixed amid steeper yield curve as dovish Williams eases Oct. hike bets

SNAPSHOT: Equities mixed, Treasuries steepen, Crude down, Dollar up, Gold up REAR VIEW: Fed's Williams sees no need for urgency after Sept rate hike; Fed's Barr said base case is that further policy adjustments are likely needed; US JOLTS and Consumer Confidence print beneath expectations; Trump rejects reports he has offered Iran sanctions relief and frozen funds; Trump reportedly backs Russian sanctions relief on prisoner release; Iran will reportedly be ready to discuss the nuclear issue only after the Strait of Hormuz issue is resolved and Washington lifts the blockade; US offers up to 40mln barrels from strategic oil reserve; Dovish-leaving RBA Governor Bullock presser; OpenAI's annual recurring revenue is reportedly close to $70B. COMING UP: Data: Australian CPI (Aug), Chinese NBS Manufacturing PMI (Sep), German Retail Sales (Aug), French CPI (Sep), German State/National CPI (Sep), Italian CPI (Sep), US PCE Price Index (Aug/Q2), GDP Final (Q2), Atlanta Fed GDP. Speakers: ECB’s Elderson, Schnabel; Fed’s Barkin, Cook, Goolsbee, Kashkari. Supply: Japan, Germany, US Treasury buyback announcement (10Y-20Y; liquidity support). Earnings: Accenture, McCormick. MARKET WRAP US indices closed mixed, as the tech-heavy Nasdaq 100 outperformed, and ended with gains, as Oracle saw strength amid reports that OpenAI's annual recurring revenue is reportedly close to USD 70bln, a steep increase from earlier reports of an annualised run rate over USD 40bln by mid-2026. Sectors were mixed as Utilities and Communication Services sat atop of the breakdown, while Energy lagged amid the losses in the crude complex after some more positive US/Iran rhetoric, as well as a couple of other bearish oil reports: 1) Trump reportedly backs Russia sanctions relief on prisoner release, and would create a path for the US to sign lucrative deals involving Russian oil, diesel, rare earth minerals; 2) US DoE offers up to 40mln barrels from SPR. Elsewhere, the Dollar Index ended up with marginal strength, as gains were trimmed following dovish remarks from Fed's Williams, which garnered US equity upside, as well as the short-end of the Treasury curve reversing losses. The influential member said that there is no need for urgency after Sept rate hike, and hinted that a second hike could wait for the Federal Reserve. Back to G10 FX performance, the Yen eked out marginal gains, while the Aussie lagged following the RBA hiking rates by 25bps as expected, but was weighed on by the dovish-leaning Bullock remarks. Precious metals gained to similar degrees, as attention turns to risk events later in the week in the form of US PCE, NFP, ISM Mfg., Fed speak, and Micron earnings. On the data footing on Tuesday, US Consumer Confidence was dismal, and JOLTS report saw job openings fall to 7.079mln from 7.335mln, below the 7.23mln forecast, with the vacancy rate easing slightly and the quits rate unchanged. FED WILLIAMS: Was dovish and garnered a market reaction. NY Fed President stated no need for urgency after Sept rate hike, and hinted the Fed can wait for another hike. The Fed will respond to data when setting monetary policy, and if the economy meets expectations, one further hike is likely this year; more data will help the Fed decide what’s next for rate policy, and reiterated he is a big believer in being data dependent. On monpol, noted it’s a hard task in determining how restrictive it is. Re. inflation, sees it at 3.5% this year, hit 2% target in 2028, and the Fed must make sure high inflation does not become entrenched, and it is imperative to get back to 2%. The influential Williams said inflation should ease because the biggest shocks have largely played out. Said US economic momentum is strong and may be strengthening, and AI investment issues are an increasingly big issue for inflation. Fed policy can make sure the impact of supply shocks is not long-lasting BARR (voter): Said he sees the US not getting to the 2% inflation target in a timely way unless it adjusts its policy, which he views as likely. He is seeing some elevated wage rates in the skilled trades. Barr is taking the longer view; need to be sure to do what it takes to bring supply and demand into balance. The Governor views the economy as quite strong right now, the labour market solid, and does not have a recession in his base case. He added that risks to achieving the inflation target have increased and risks to the labour market have reduced. Barr expects GDP growth to pick up a bit in H2 from 2% in H1. He noted that it makes sense to pencil in AI productivity boost in medium term yields but difficult to project how or when. The AI buildout is likely to be a strong boost to US economic activity next year or so and is prepared for serious short-term disruptions in labour market from AI. GOOLSBEE (2027 voter): Nothing in the Fed Reserve Act says to make sure the bond market is happy, and stock markets aren't surprised. The Chicago Fed President said need to revisit the logic of looking through supply shocks. MUSALEM (2028 voter): In his text release, focused more on framework, rather than monpol or the outlook, and said central bankers needn't make promises, but should tell the public how and why the central bank makes policy decisions. St. Louis Fed President said a well-articulated framework should include two or three likely scenarios, and communicating it makes policy more effective and lowers costs for households and businesses. Later, he said the logic of "looking through" supply shocks weakens when one shock follows another, and heightens the risk of broader inflation taking root. On inflation, about half now is from persistent demand pressure, and expectations remain consistent with 2% inflation over the long run. Monetary policy remains somewhat accommodative even after the last rate hike. US DATA CONSUMER CONFIDENCE: US consumer confidence was dismal for September, as the headline fell to 81.9 from 88.6, way beneath the expected 89.2. Present Situation Index tumbled 7.9 points to 109.3, while Expectations Index fell by 5.9 points to 63.6. Consumers’ views of current business conditions fell in September, as 18.5% said they were “good” (prev. 18.8% in Aug.), while 20.4% said they were “bad” (prev. 17.3%). Views of the labour market also softened, with 23.6% of consumers noting they were “plentiful” (prev. 24.5%) and 21.9% said jobs were “hard to get” (prev. 20.3%). Ahead, consumers were more pessimistic about future business conditions, more negative abut the labour market outlook, and assessment of their income prospects was also less optimistic, printing overall a pretty dour picture. Looking at the write-in responses, the Chief Economist of The Conference Board said factors affecting the economy were mostly pessimistic in September. References to prices, the high cost of goods and services, and oil and gas prices in particular, rose to new heights, reflecting September’s surge in fuel costs. Comments about war/conflict eased this month but remained elevated. Consumers also frequently cited politics, trade, and employment in their write-in responses, though to a lesser extent.” JOLTS: The August JOLTS report saw job openings fall to 7.079mln from 7.335mln, below the 7.23mln forecast. The vacancy rate eased slightly to 4.30% from 4.40%. Quits fell slightly to 3.066mln from 3.089mln, leaving the quits rate unchanged at 1.9%. Separations declined to 5.07mln from 5.128mln, leaving the rate unchanged at 3.2%. Layoffs fell to 1.641mln from 1.702mln, with the rate easing to 1.0% from 1.1%. Hires meanwhile rose to 5.192mln from 5.146mln, with the rate rising to 3.30% from 3.20%. Analysts at Pantheon Macroeconomics note that the report is offering plenty of reasons to hold back from tightening monetary policy further. The consultancy adds, "The hirings-to-openings ratio also is showing little movement, suggesting employers are finding it no more difficult than usual to attract new workers, despite the recent decline in the unemployment rate." FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 2 TICKS LOWER AT 104-13+ T-notes steepen as short-end losses reversed on dovish Fed Williams' remarks. At settlement, 2-year -4.2bps at 4.889%, 3-year -2.1bps at 4.989%, 5-year -0.8bps at 5.064%, 7-year +1.1bps at 5.161%, 10-year +2.3bps at 5.259%, 20-year +4.0bps at 5.645%, 30-year +4.3bps at 5.593%. THE DAY: The yield curve steepened on Tuesday, with front-end yields lower while long-end yields extended recent gains. Williams remarks, lower oil prices on hopes of US-Iran diplomacy, and the DoE announcing it will release an additional 40mln bbls of oil from the SPR (received poor demand when offered in June) helped support the front end. Williams sees no need for urgency after the September rate hike, arguing there is time to gather more information to provide greater clarity on the underlying economic trends and associated risks in support of setting the appropriate monetary policy. Now, an Oct hike/hold is priced 50/50 (prev. 70% hike). Meanwhile, Paramount Skydance (PSKY) kicked off its high-grade bond sale, looking to raise USD 32bln in what Bloomberg reports would be the fifth-largest US high-grade sale on record. The offering, which will fund the majority of its Warner Bros. Discovery (WBD) acquisition, likely weighed on Treasuries across the curve pre-Williams through rate-lock positioning associated with the deal. Other Fed speakers included Barr, who stressed the need to recalibrate policy, noting his base case is that further policy adjustments are likely needed. 2027 voter Goolsbee said nothing in the Fed Reserve Act says to make sure the bond market is happy; stock markets aren't surprised. He added that in the dot plot, he is one of the more optimistic folks at the Fed. Lastly, 2028 voter Musalem said about half of inflation now is from persistent demand pressure and monetary policy remains somewhat accommodative even after the last rate hike. Elsewhere, August JOLTS fell notably to 7.079mln from 7.335mln, below the 7.23mln forecast. The vacancy rate ticked higher, while the quits rate was unchanged. The softer report provided some counterweight to recent labour-market strength, although Fed Chair Warsh has stressed his preference for assessing the data as a whole rather than individual releases. Consumer confidence also tumbled to 81.9 from 88.6 (exp. 89.2), with views on current and prospective business and labour-market conditions deteriorating. Attention now turns to Friday's NFP report for further evidence on the strength of the labour market and implications for Fed policy through year-end, although the Fed's recent focus has remained firmly on inflation. We also see the US PCE report Wednesday and ISM Manufacturing PMI on Thursday. Supply Bills US sold 6-week bills at a high rate of 3.970%, B/C 2.82x; sells 1-year bills at a high rate of 4.400%, B/C 3.07x US to sell USD 95bln of 8-week bills and USD 100bln of 4-week bills on Oct 1st; To sell USD 75bln of 17-week bills Sept 30th; All to settle Oct 6th. STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Oct 12.9bps (prev. 17bps), Dec 33.6bps (prev. 38.3bps) EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 112bln) on September 28th SOFR at 3.90% (prev. 3.90%), volumes at USD 2.964tln (prev. USD 2.914tln) on September 28th NY Fed RRP op demand at (prev. 0.85bln) across counterparties (prev. 3) on September 29th Treasury Buyback [Liquidity Support, 1-10year TIPS, max USD 750mln]: Accepts USD 605mln of USD 3.981bln offers, accepts 7 of 28 eligible securities CRUDE WTI (X6) SETTLED USD 3.22 LOWER AT 89.38/BBL; BRENT (Z6) SETTLED USD 2.69 LOWER AT USD 102.59/BBL The crude complex saw losses and settled at session lows, as benchmarks sold off throughout the US session from earlier highs in the European morning. Initially, the paring of gains seemed to be on further signs that US-Iran diplomacy remains possible, as Qatar said mediation efforts are ongoing and focused on building common ground between the US and Iran. Thereafter, there were numerous downside catalysts, with the first being an Atlantic report that Trump backs Russia sanctions relief on prisoner release, and would create a path for the US to sign lucrative deals involving Russian oil, diesel, rare earth minerals, and other commodities. Secondly, US DoE offers up to 40mln barrels from SPR. Note, in June, the Trump admin offered to loan the last 40mln barrels from that IEA agreement, but later said that companies only agreed to borrow ~500k barrels. WTI hit a high of USD 94.74/bbl, while Brent topped out at USD 100.28/bbl. Meanwhile, White House has urged the EU to draw down from diesel emergency inventories in a bid to lower global prices, according to reports Ahead, traders await the weekly private inventory metrics after-hours, as well as any further Middle East rhetoric. EQUITIES CLOSES: SPX -0.17% at 7,671, NDX +0.21% at 30,339, DJI -0.26% at 51,355, RUT -0.35% at 2,808 SECTORS: Energy -0.89%, Materials -0.55%, Consumer staples -0.54%, Financials -0.37%, Health -0.32%, Technology -0.28%, Real estate flat, Consumer discretionary flat, Industrials +0.19%, Communication services +0.4%, Utilities +1.14%. EUROPEAN CLOSES: Euro Stoxx 50 +0.38% at 6,325, Dax 40 +0.00% at 25,375, FTSE 100 -0.45% at 10,637, CAC 40 -0.53% at 8,036, FTSE MIB +0.09% at 51,805, IBEX 35 -0.42% at 19,518, PSI -0.48% at 9,666, SMI -0.22% at 13,912, AEX +0.36% at 1,120. EARNINGS: STOCK SPECIFICS: Jefferies (JEF) reported a sharp decline in asset mgmt. rev. & weaker FI trading but saw record equity trading & IB rev. w/ a profit beat. AAR Corp (AIR) agreed to buy a 65% stake in aircraft maintenance Co. MRO Holdings for $1.8bln. Goldman Sachs (GS) Board discussed replacing CEO David Solomon w/ President & COO John Waldron around end-2027 or 2028. AMD (AMD) to acquire World Labs for $8.2bln in an all stock transaction. AstraZeneca will invest USD 2bln in Summit Therapeutics (SMMT). PepsiCo (PEP) was downgraded at JPM on a stalled US turnaround. uniQure's (QURE) Gene therapy continues to slow Huntington’s progression after four years, but magnitude of treatment’s benefit waned vs. similar analysis a year ago. Carnival (CCL) surpassed Wall St. expectations on the top and bottom line. FDA warns Neogen (NEOG) over contaminated “sterile” vet product tied to record horse deaths; cites insanitary manufacturing, quality-oversight failures. OpenAI's annual recurring revenue is reportedly close to USD 70bln, amidst growing enterprise sales which have more than doubled since July, Axios reports citing sources; ORCL rallied on the news. Apple (AAPL) CEO Ternus discussing holding more frequent product launches; moves to overhaul Co. to run faster and leaner. Meta (META) released a forum app for iOS and Android in the US. Lundbeck has shown interest in acquiring Xeris (XERS). FX DXY strengthened on Tuesday, supported by the rise in long-term yields, albeit gains faded in the afternoon on dovish Fed Williams remarks. The Vice Chair, who has historically been closely aligned with the Fed Chair in the past, sees no need for urgency after the September rate hike, arguing there is time to gather more information to provide greater clarity on the underlying economic trends and associated risks in support of setting the appropriate monetary policy. This marks a pushback against the recent hawkish remarks we've had, typically from the regional voters. However, today Governor Barr sees the US not getting to the 2% inflation target in a timely way unless it adjusts its policy, which he views as likely. DXY started the day at 101.19, hitting highs of 101.612 before trimming to around 101.37. US data was disappointing. JOLTS fell 7.079mln, beneath the 7.23mln expected in August, with the quit rate unchanged at 1.9% and the vacancy rate down to 4.3% from 4.2%. Meanwhile, Consumer Confidence dropped in September, weighed by views on the present and future situations. Antipodes underperformed in G10 FX vs USD, while JPY saw modest strength as Williams' remarks sent support via the pullback in US 2yr yields, with money markets returning to a coin flip for a 25bps Fed rate hike in October (prev. 70%). AUD weakened despite the expected RBA rate hike, as the accompanying language from Governor Bullock was dovish leaning. "Hopes the four hikes delivered this year will be restrictive enough to slow inflation and that, if inflation comes down, further hikes may not be needed" - signalling a potential pause/end to the hiking cycle, conditional on inflation. AUD/USD hit lows of 0.6966 from 0.7012 seen at the start of the week. In the EU morning, CNH was modestly weighed by the PBoC cutting the mortgage-supplementary lending rate (PSL) by 25bps, lowering the one-year PSL rate to 1.50% (prev. 1.75%). Williams-induced USD weakness allowed for the CNH to finish firmer.