Newsquawk US Market Wrap: Stocks bid with yields and oil little changed

SNAPSHOT: Equities up, Treasuries steepened, Crude up, Dollar down, Gold up. REAR VIEW: US completes wave of attacks against Iranian military targets; Iran responded to US strikes on US air bases; Saudi Foreign Ministry urged all parties to remain calm, halt escalations and return to negotiations; Fed's Williams said rates are in a good place; BoC holds rates as expected; RBNZ hike fails to impress hawkish expectations; Fresh JPY speculation emerge; Bessent and Lutnick speak on bond yields COMING UP: Data: Chinese RatingDog Services PMI (Aug), Australian Trade Balance (Jul), Swiss CPI (Aug), GDP (Aug), Global S&P Services and Composite PMI Final (Aug), EU PPI (Jul), US Challenger Layoffs (Aug), Trade Balance (Jul), Jobless Claims, ISM Services PMI (Aug), Atlanta Fed GDP (Q3), Canadian Trade Balance (Jul). Speakers: Fed’s Waller, Hammack, Goolsbee; RBA’s Jones, Hunter. Supply: Japan, Spain, France. MARKET WRAP Stocks gained on Wednesday, with the Russell 2000 outperforming while the Nasdaq underperformed. The vast majority of sectors finished in the green, although Consumer Discretionary was flat and Real Estate closed lower amid ongoing concerns around elevated yields, albeit the Treasury curve itself was little changed on the session. The Treasury curve saw a marginal steepening, with front-end yields edging lower while the belly and long end were broadly flat as attention turns towards Friday's NFP report. Administration officials continued to be quizzed on elevated bond yields, with Commerce Secretary Lutnick saying rates will come back down and the market will stabilise, adding that he is not concerned. Treasury Secretary Bessent meanwhile said the goal of the buyback operations is to avoid a bad market outcome, noting that buybacks free up balance-sheet capacity and make room for banks to participate more at Treasury auctions. Oil prices settled in the green amid elevated US-Iran tensions, although US President Trump said the renewed campaign against Iran will not continue for too long and that oil prices will come down. However, Trump also said he is prepared to launch another attack on Iran. Meanwhile, the Saudi Foreign Ministry urged all parties to remain calm, halt escalation, respect international law and return to negotiations. In FX, the Yen outperformed amid intervention watch following some sizeable Yen buying, while Treasury Secretary Bessent added to the move by saying, "I know what Japan are doing". The CAD also strengthened following the BoC, which left rates unchanged but placed greater emphasis on its inflation mandate amid rising upside risks, while Governor Macklem acknowledged the bluntness of monetary policy in addressing the impact of US-Canada tariffs. The NZD lagged after the RBNZ hiked rates as expected overnight, although its OCR projections were lower than forecast. Elsewhere, Gold and Silver posted solid gains, while Bitcoin was broadly flat. NORTH AMERICA BoC: The Bank of Canada left rates on hold at 2.25%, as expected, and acknowledged recent developments with the US/Iran conflict and fresh tariff announcements from the US and Canada. It noted that upside risks to inflation have increased, while new tariffs make growth prospects more certain - noting both developments remain fluid. The explicit mention of rising inflation risks, and commentary from Macklem stating that inflation data will guide policy decisions - adding that multiple rate increases could be needed if they felt that inflation is a problem, lead to a hawkish reaction. The governor also acknowledged that monetary policy cannot offset the effects of tariffs or influence global energy prices, but what they can do is ensure global developments don’t jeopardize price stability in Canada. Meanwhile, the statement acknowledged an improvement in labour market conditions and strengthening Canadian economic activity with solid consumption. Given these references, it appears the BoC are somewhat more concerned about the inflation side of its mandate with rising inflation risks, but it acknowledged little evidence of higher energy prices spreading to other components of inflation. Money market pricing now assigns a c. 75% probability of a rate hike vs 64% beforehand for a rate hike this year, but Oxford Economics expects the BoC to keep rates on hold until late 2027 and possibly into 2028 - citing recent escalation of US/Canada trade war. It calls market pricing of three 25bp hikes by mid 2027 overly ambitious. FED'S WILLIAMS: Said that rates are in a good place to balance the Fed’s dual mandate and reiterated his support for the previous decision to hold, with future policy dependent on the totality of incoming data. On inflation, he identified tariffs and the Middle East conflict as the main sources of price pressure, alongside some services inflation, but sees no evidence of second-round effects and noted that inflation expectations remain well anchored. Recent inflation trends have been encouraging, and he sees inflation moving lower, although the Fed still needs confidence it is on a path back to 2%, while the labor market remains stable and solid. Williams attributed much of the rise in Treasury yields to the strong economy and surge in AI-related investment rather than inflation concerns, noting that higher investment could ultimately boost productivity and the neutral rate, although current data is not yet signalling a meaningful rise in the neutral rate. ADP: ADP national employment rose 38k in August from a revised lower 44k in July, and shy of the expected 47k. Job-stayers median change in annual pay was unchanged at 4.4%, while job-changers was 7.3% from July's 7.5%. Private employers posted their slowest pace of job creation since January. Manufacturing, professional services, and information shed jobs, while education and health care, construction, and leisure and hospitality all showed solid hiring. ADP chief economist Richardson said that "Pay can tell us a lot about today's choppy hiring. To understand hiring patterns, you have to look deeply into where pay growth is accelerating, where it's slowing, and for whom. Once-predictable wage growth has been overtaken by the complexities of demographic change, persistent inflation, and AI's effects on jobs." FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 1 TICK HIGHER AT 107-13 Yield curve marginally steepens as eyes turn to ISM Services and Waller on Thursday before NFP on Friday. At settlement, 2-year -1.2bps at 4.388%, 3-year -0.8bps at 4.455%, 5-year -0.6bps at 4.553%, 7-year unchanged at 4.669%, 10-year unchanged at 4.796%, 20-year +0.6bps at 5.277%, 30-year +0.3bps at 5.270%. THE DAY: The Treasury curve marginally steepened on Wednesday, with front-end yields edging lower while the belly and long end were little changed. Price action was relatively subdued despite a decent amount of newsflow, although the elevated yield environment continued to attract attention from administration officials, with both Lutnick and Bessent commenting on recent moves in the Treasury market. Lutnick was asked about higher global bond yields and potential Treasury intervention, saying he believes the market will stabilise in a more significant way than people expect. He said he is optimistic the bond market will "treat us well", although it may take a couple of months for rates to stabilise, adding that he remains comfortable with current levels. Bessent meanwhile discussed the Treasury's buyback operations, saying the aim is to avoid bad market outcomes and help prices return towards equilibrium. He added that buybacks free up dealer balance sheets and create additional capacity for banks to participate at Treasury auctions. The data highlight was the August ADP Employment report ahead of Friday's NFP. Private payrolls rose by 38k, below the 47k forecast and slowing from the prior 44k, although the report provides an imperfect read-across to the official payrolls data. The median annual pay increase for job stayers accelerated to 4.4%, while pay growth for job changers eased to 7.3% from 7.5%. Elsewhere, Factory Orders rose 0.9%, above the 0.6% forecast and rebounding from the prior 0.2% decline. Fed speak saw Williams argue that recent bond market moves have been driven primarily by the strength of the US economy and significant AI-related investment rather than the inflation outlook or financial conditions. He also said Treasury buybacks do not complicate monetary policy. On the neutral rate, Williams noted that the current real interest rate is around 1% and that an environment of stronger investment and productivity could imply a higher real neutral rate, although he stressed that the data are not yet clearly signalling that neutral has risen. Elsewhere, oil prices edged higher as recent geopolitical escalation continued to provide support, although Trump suggested the renewed campaign would not last much longer. Meanwhile, agreements were announced between the US and Venezuela, including with Chevron (CVX), giving the US significant influence over Venezuelan oil reserves. Looking ahead, Thursday sees remarks from Fed Governor Waller, Hammack and Goolsbee ahead of the FOMC blackout period beginning Saturday. Data highlights include ISM Services, weekly Initial Jobless Claims and final Q2 Productivity and Unit Labour Costs, before attention turns firmly to Friday's US NFP report. THE DAY:  SUPPLY US sold 17-week bills at a high rate of 3.855%, B/C 2.78x US to sell USD 85bln of 8-wk bills and USD 90bln of 4-wk bills on September 3rd; all to settle Sept. 8th STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Sept 16.1bps (prev. 16.8bps), Dec 38.4bps (prev. 39.7bps).  EFFR at 3.63% (prev. 3.63%), volumes at USD 114bln (prev. USD 105bln) on September 1st SOFR at 3.66% (prev. 3.68%), volumes at USD 2.912tln (prev. USD 3.056tln) on September 1st NY Fed RRP op demand at 0.53bln (prev. 0.72bln) across 1 counterparties (prev. 2) on September 2nd CRUDE WTI (V6) SETTLED USD 0.79 HIGHER AT 91.01/BBL; BRENT (X6) SETTLED USD 0.98 HIGHER AT 95.63/BBL The crude complex extended on its weekly gains as Wednesday's US/Iran headlines did little to shift the overall backdrop. Following the strikes from both sides on Tuesday, Iran reiterated that it does not reject negotiations but said the US must fulfil its commitments before Tehran takes steps to reopen Hormuz, while a US source said the latest strikes were pre-emptive and targeted an alleged Iranian plot against submarine cables in the Strait. Trump later remarked that the strikes were due to Iran trying to build a rocket that drops mines, so they took it out. As Trump spoke, benchmarks saw two-way action as he noted renewed campaign against Iran will not continue for too long and oil prices will come down, but then added that he is prepared to do another attack on Iran. Further on this footing, Saudi Foreign Ministry said it has urged all parties to remain calm, halt escalations and respect international law and return to negotiations. Away from the Middle East, the weekly EIA data saw a larger draw than expected in crude stocks, as seen in the private figures last night, while gasoline was a shallower than anticipated draw; distillates noticed an unexpected build. Weekly crude production was up 19k W/W to 13.862mln. Note, little move was seen on the dataset. WTI traded between USD 88.97-92.29/bbl and Brent USD 93.52-97.04/bbl. EQUITIES CLOSES: SPX +0.48% at 7,668, NDX +0.23% at 29,143, DJI +0.56% at 53,062, RUT +1.23% at 2,956. SECTORS: Materials +1.54%, Communication Services +1.16%, Health +0.79%, Financials +0.78%, Technology +0.33%, Energy +0.33%, Consumer Staples +0.20%, Utilities +0.19%, Consumer Discretionary +0.19%, Industrials +0.02%, Real Estate -0.78%. EUROPEAN CLOSES: Euro Stoxx 50 -0.10% at 6,363, DAX -0.47% at 25,837, CAC 40 -0.26% at 8,281, FTSE 100 -0.29% at 10,758, SMI +0.10% at 14,350, FTSE MIB -0.24% at 51,793, IBEX 35 -0.20% at 19,775, PSI -0.77% at 9,405, AEX +0.16% at 1,104. STOCK SPECIFICS: Dell (DELL): EPS & rev. smashed exp. alongside sharply raising FY outlook. Nvidia (NVDA) nears USD 14bln Hugging Face acquisition. Palo Alto Networks (PANW) traded lower despite beat & strong guidance. Gitlab (GTLB): Quarterly metrics beat with strong FY guidance. Uber (UBER): Said to be cutting 3.3k jobs amid an overall to cut management layers. SiriusXM (SIRI): Upgraded at Deutsche Bank. Thoma Bravo's Proofpoint reportedly in talks to acquire Varonis (VRNS), according to sources. FX The Dollar Index saw very modest losses, but performance against G10 counterparts was mixed (more details below). For the Dollar specifically, geopolitics continues to dominate the tape while Dollar-specific newsflow was still pretty light. NY Fed President Williams said that rates are in a good place to balance the Fed’s dual mandate and reiterated his support for the previous decision to hold, with future policy dependent on the totality of incoming data. Next on the Fed docket is the influential Waller due to speak on Thursday ahead of NFP on Friday. Yen was the clear G10 outperformer, and saw large bouts of strength through the afternoon with headline driver behind the move. Highlighting this, USD/JPY tumbled from 159.58 to a low of 158.21, before reversing some of the move. Prior to this, BoJ hawkish dissenter Takata overnight said that they need to consider a broad range of options, not just a 25bps hike each time. Adds, a different response is needed from the normal semi-annual pace of tightening. Further more, and seeing another bout of downside in USD/JPY was after US Treasury Secretary Bessent stated that "I know what the Japanese are planning on doing". Kiwi was the distinct laggard post-RBNZ overnight. Overall, the central bank failed to impress hawkish expectations in its policy meeting where the OCR was raised by 25bps to 2.75%, as expected. While flagging further tightening, the bank highlighted downside risks to the economy and rate projections showed less expected tightening than markets expect, with the OCR projection for December 2026 seen at 2.81% (OIS Implied Rate: 2.99%), September 2027 at 3.12% (OIS Implied Rate: 3.48%) and December 2027 3.15% (OIS Implied Rate 3.75%). Lastly on the central bank footing, the USD/CAD fell from c. 1.3902 to 1.3883, despite them holding rates at 2.25%, as expected. The statement brought attention to the risks surrounding the Middle East and US-Canada tariff situation, noting "upside risks to inflation have increased, while new tariffs make growth prospects more uncertain". However, Macklem acknowledged the limits of monetary policy in dealing with the tariff fall out - putting more focus on inflation. As such, Canadian swap markets price a 75% probability of a hike this year vs. 64% prior to the confab.