US MARKET WRAP: Dollar and US yields rise on above expected PCE; stocks rangebound ahead of NVDA earnings

SNAPSHOT: Equities mixed, Treasuries down, Crude down, Dollar up, Gold down REAR VIEW:  Mixed US PCE report, in-line core, headline above consensus; US Q2 GDP unrevised as expected; Durable goods rise more than expected; Trump says he is "not in a hurry" with Iran; Senior Iranian Official says that an agreement with Oman with the Strait of Hormuz has not yet been finalised; Russian President Putin reportedly planning Ukraine escalation and seeing talks as fruitless; US 5yr auction shows improving demand; Atlanta Fed GDPnow Q3 estimate revised higher; META to pay a maximum of $16.68B to states to settle social media case. COMING UP: Data: Chinese Industrial Profits (Jul), German GfK Consumer Confidence (Sep), US Jobless Claims (Aug/22). Events: Fed Jackson Hole Symposium (27-29th), BoK Announcement (Aug), ECB Minutes (Jul), RBA Bulletin (Aug). Speakers: BoJ’s Himino. Supply: US. Earnings: Marvell, Pernod Ricard. MARKET WRAP Stocks traded little changed on Wednesday ahead of NVDA earnings after the close. Sectors were mixed, with Industrials, Tech, and Utilities leading gains, while Healthcare and Communications saw the most weakness. In comms, slight weakness in Alphabet was enough to offset the gains in Meta following the latters' settlement in the US case on social media harm to children, which helps clear some of the uncertainty overhang (to pay a max of $16.68bln). The dollar and US yields rose on the day in response to above consensus PCE report; the core readings matched expectations, though the headline came in slightly above at 0.2% M/M (exp. 0.1%) and 3.7% Y/Y (exp. 3.6%). Despite the rise in US 2yr yields, money market bets on Fed policy were little changed for the September meeting, still pricing a 60% chance of a hold. Meanwhile, US GDP was unrevised at 1.5% in Q2 on the second estimate, with increases seen in consumer spending, exports, and investment; durable goods beat in July, supporting the theme of solid investment. Oil prices settled slightly lower, but well off European lows. The initial weakness was a continuation of downside in response to a RIA report on Tuesday that a ceasefire between the US and Iran has been agreed upon, and it includes free navigation in the Strait of Hormuz and will be announced in the coming days. Since the report, no other news outlet has reported anything similar. Helping crude to rebound was a Bloomberg report that Russian President Putin is planning an escalation vs Ukraine as talks hit a dead end. The EIA report may have also contributed to the reversal, with the SPR 3.7mln draw more than offsetting the slight commercial crude stock build. Additionally, modest upside was seen in response to reports that a senior Iranian Official said that an agreement with Oman on the Strait of Hormuz has not yet been finalised. Separately, IRGC said Iran and Oman agreed on the share of Hormuz revenues; however, US interference is delaying implementation. As mentioned, US yields were firmer with the curve bear-flattening as the short end underperformed. The US 5yr note auction was met with improved demand since the last auction, with dealers' proportion of the bid shrinking; however, the 0.2bps tail displays the challenges the maturity faces. Amid the rise in yields and the USD, precious metals were weighed on, with spot gold trimming MTD gains, now sitting at ~ USD 4,600. US US PCE: Core PCE rose 0.2% M/M in July, in line with analyst expectations, while headline PCE rose 0.2%, above the 0.1% forecast. Core PCE rose 3.3% Y/Y, matching both the prior pace and analyst forecasts, while headline PCE rose 3.7% Y/Y, unchanged from the prior but above the 3.6% forecast. With the headline measures hotter than expected, the initial reaction was hawkish as the FOMC continues to face stubbornly elevated inflation. However, the data did not materially alter the policy outlook, with recent softness in the labour market allowing the Fed to remain patient rather than rushing into rate hikes. There is still more data due before the September FOMC to further shape expectations for the meeting, with markets currently assigning around a 62% probability of a hold. Elsewhere within the report, personal spending rose 0.2%, above the 0.1% forecast but slowing from the prior 0.3%, while personal income rose 0.4%, above both the 0.2% forecast and prior, pointing to continued resilience among consumers. On prices, Pantheon Macroeconomics noted that the core deflator was a whisker away from rounding to 0.3%, although the underlying details were relatively encouraging. The consultancy highlighted that around 11bps of the monthly core increase came from portfolio management prices, a volatile component which it expects will largely be revised away following upcoming methodological changes. Pantheon expects further relatively reassuring monthly inflation prints to convince the FOMC to keep policy unchanged through the remainder of the year. GDP Q2 2ND EST: GDP growth was unrevised at 1.5% for Q2, in line with expectations. The increase was supported by increases in consumer spending, exports, and investment that were partly offset by a decrease in government spending. The upward revision to consumer spending reflected an upward revision to services that was led by healthcare, which was partly offset by a downward revision to goods that was led by recreational goods and vehicles. The price index rose 6.4% Q/Q, above the expected 6.3%; core PCE prices rose 3.6% in Q2, above the 3.4% consensus, whilst sales rose 2.2% as expected. Real final sales to private domestic purchasers increased 4.2%, revised up from 3.9%. The price index for gross domestic purchases rose 5.8%, revised up from 5.7%. Oxford Economics notes that solid consumer spending will keep the Fed focused on inflation, with Q2 headline and core PCE revised slightly higher. The firm expects Core PCE to end 2026 at 3.2% before easing to 2.3% by Dec. 2027 as fading tariff effects, services disinflation and lower energy prices drive further disinflation. DURABLE GOODS: Durable Goods for July was strong on the headline as it rose 1.1%, above the expected 0..4% and previous 0.3%. Core durable goods disappointed as it printed 0.4%, shy of the expected 0.6%, and falling from the prior 1.1%. Goods Orders Non Defense Ex Air printed 0.2% (exp. 0.9%, prev. 1.7%), with durables ex defense came in at 1.3% (prev. 0.3%). Overall, the data points to still solid investment. Oxford Economics notes that the headline reading was in line with their above-consensus forecast, although core capital goods orders came in softer than expected. However, an upward revision to June core orders takes some of the sting out of that weaker July reading. Ahead, OxEco remarks anticipated business spending on equipment continues to be robust, indicating that further strength is in store for business investment during H2. FIXED INCOME T-NOTE FUTURES (U6) SETTLED 6+ TICKS LOWER AT 108-21 Treasury yields rose across the curve on Wednesday on hot-leaning US data and oil prices paring overnight losses. At settlement, 2-year +4.6bps at 4.222%, 3-year +4.8bps at 4.283%, 5-year +4.5bps at 4.373%, 7-year +4.5bps at 4.504%, 10-year +3.9bps at 4.662%, 20-year +3.1bps at 5.177%, 30-year +2.6bps at 5.183%. THE DAY: Treasury yields rose across the curve on Wednesday, with front-end yields leading the move higher and resulting in a bear flattening of the curve. The move was driven by hot-leaning inflation data alongside resilient economic activity, while the rebound in oil prices from session lows provided an additional source of pressure. On the data, core PCE rose 0.2% M/M in July, in line with expectations, while headline PCE rose 0.2%, above the 0.1% forecast, with the Y/Y rate also above expectations at 3.7%. Core PCE Y/Y was in line at 3.3%. Alongside the PCE report, Q2 GDP rose 1.5%, matching forecasts, although the Q2 price index rose 6.4%, above the 6.3% forecast, while core PCE prices rose 3.6% in Q2, above the 3.4% consensus. Durable Goods were also stronger than expected. The combination of resilient activity and hot-leaning price data pressured Treasuries across the curve, particularly at the front end. Overall, the data did little to materially alter the Fed policy outlook but continued to show that inflation remains elevated. Attention now turns to the remaining data ahead of the September FOMC, including another NFP, CPI and PPI report. Meanwhile, oil prices rebounded from morning lows amid punchy Iranian commentary and reports suggesting Iran and Oman are still working towards an agreement regarding the Strait of Hormuz. The developments offset some of the optimism seen in late trade on Tuesday following RIA's report that a US-Iran ceasefire agreement, including freedom of navigation through Hormuz, could soon be announced. The US Treasury also sold USD 70bln of 5-year notes, which tailed the WI by just 0.2bps. The minimal tail, above-average bid-to-cover, strong direct participation and low dealer allocation pointed to a solid reception, particularly given the lower outright yield compared with July. Indirect participation remained below average, preventing the result from being particularly strong, but demand was clearly improved from the soft July offering. SUPPLY Notes/Bonds US sold USD 70bln of 5-year notes; Tail 0.2bps. US to sell USD 44bln of 7-yr notes on Aug. 27th; to settle on Aug. 31st Bills US sold 17-wk bills at 3.750%, B/C 3.09x US to sell USD 100bln of 4-wk bills and USD 90bln of 8-wk bills on Aug. 27th; all to settle on Sept. 1st STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Sept 10.0bps (prev. 10.0bps), (prev. 26.1bps). EFFR at 3.63% (prev. 3.63%), volumes at USD 109bln (prev. USD 99bln) on August 25th SOFR at 3.66% (prev. 3.65%), volumes at USD 2.916tln (prev. USD 2.919tln) on August 25th NY Fed RRP op demand at 0.70bln (prev. 0.41bln) across 4 counterparties (prev. 6) on August 27th NY Fed T-Bill Purchases (4-11 month): Accepts USD 2.12bln of USD 21.96bln offered; Offer-to-cover 10.35x CRUDE WTI (V6) SETTLED USD 0.13 LOWER AT USD 82.23/BBL; BRENT (X6) SETTLED USD 0.33 LOWER AT USD 86.94/BBL The crude complex was choppy, settling little changed as headlines included both geopolitical escalatory and de-escalatory updates. After settlement on Tuesday, downside in oil was seen as a Russian outlet, Ria, reported that a ceasefire between the US and Iran has been agreed upon, and it includes free navigation in the Strait of Hormuz and will be announced in the coming days. Since this report, we have had nothing similar, but it sparked notable downside throughout overnight and European trade. Benchmarks hit session lows in the European morning, potentially as traders got to their desks and reacted to the news. Today, WTI and Brent saw upside as a Senior Iranian Official stated that an agreement with Oman on the Strait of Hormuz has not yet been finalised, and they are still working on an agreement. Moreover, further gains were seen in the US afternoon as BBG TV reported that Russian President Putin is planning an escalation on Ukraine and sees talks as fruitless. In terms of the weekly EIA data, crude saw a slightly smaller build than anticipated, while gasoline and distillates both saw a larger draw than forecasted. Overall, weekly crude production rose 13k to 13.843mln, with US SPR falling to 289.7mln from 293.4mln. For the record, WTI traded between USD 79.62-82.02/bbl and Brent USD 84.56-86.65/bbl. EQUITIES CLOSES: SPX -0.02% at 7,676, NDX +0.05% at 29,225, DJI -0.21% at 53,469, RUT -0.14% at 3,006 SECTORS: Health -1.01%, Communication services -0.71%, Consumer discretionary -0.62%, Real estate -0.54%, Consumer staples -0.4%, Financials -0.11%, Materials flat, Energy +0.27%, Technology +0.37%, Utilities +0.47%, Industrials +1.07% EUROPEAN CLOSES: Euro Stoxx 50 +0.30% at 6,475, Dax 40 +0.19% at 26,316, FTSE 100 -0.07% at 10,878, CAC 40 +0.27% at 8,462, FTSE MIB +0.31% at 52,883, IBEX 35 +0.05% at 20,067, PSI +0.01% at 9,446, SMI +0.12% at 14,543, AEX -0.05% at 1,108 STOCK SPECIFICS: Intuit (INTU): Dismal next Q & FY guidance. Zoom Communications (ZM): Next Q outlook light, disappointing investors hoping its expanded product suite would drive stronger growth. Kohl's (KSS): Rev. light; profit topped & raised guidance, but tariff refunds have done a lot of heavy lifting. Abercrombie & Fitch (ANF): Strong Q metrics w/ strong guidance. J M Smucker (SJM): Top & bottom line beat alongside raising FY outlook. Solar Edge Technologies (SEDG): Upgraded at UBS. Boston Scientific (BSX): Identified a cybersecurity incident affecting certain of its information technology systems that has resulted in a global disruption to the company's operations. States and Meta (META) agreed to settle claims that platforms harmed children, according to a court filing; Meta agrees to pay a maximum of USD 16.68bln to states as part of the deal. Apple (AAPL) to hold new iPhone launch event on September 9th. FX USD was bid on a hot-leaning PCE report. Core printed in line with expectations of 0.2% M/M and 3.3% Y/Y; meanwhile, the headline was slightly hot at 0.2% M/M (exp. 0.1%) and 3.7% Y/Y (exp. 3.6%). G10 peers were largely weaker on the day, led by NZD, CHF and GBP. Oil prices were choppy, managing to recoup earlier losses initially driven by optimistic reporting on an imminent US-Iran deal, which likely helped support the buck. Keeping oil prices and inflationary concerns heightened was a Bloomberg report that Russian President Putin is looking to escalate the war with Ukraine in response to enduring attacks on energy infrastructure, a situation that will likely lead to a further deterioration in the refined products market. Other US data included US GDP rising 1.5% in Q2 (unrevised from the advance figure), driven by increases in consumer spending, exports, and investment; Durable Goods beat in July, supporting the theme of solid investment. DXY hit highs of 99.23, still shy of the 99.63 highs seen last week before the US Treasury Buyback announcement. AUD was the clear G10 outperformer vs USD following inflation data. CPI came in above expectations, remaining above the RBA’s 3% upper inflation target, with the RBA’s preferred measure, trimmed mean, unchanged at 3.6% Y/Y above expectations of 3.5%. AUD/USD hit highs of 0.7189 before trimming to around 0.7172.