US Market Wrap - 17th September 2026: Stocks and bonds gain as market focuses on Fed credibility

SNAPSHOT: Equities up, Treasuries up, Crude down, Dollar down, Gold up REAR VIEW: Market reverses hawkish Fed reaction on Fed credibility boost; BoE leaves rates on hold as expected; China pushes Iran to help rein in Houthis; Saudi asks Oman to request a two-week truce from Houthis; Pakistan urges Iran to convince Houthis not to attack Saudi energy; Trump says he is at a critical juncture with Iran; Jobless Claims remain low; Housing Starts, Building Permits and Pending Home Sales disappoint; NBIS hikes AI cloud prices. COMING UP: Data: Japanese Inflation (Aug), German PPI (Aug), UK Retail Sales (Aug), US Industrial/Manufacturing Production (Aug) Events: BoJ Policy Announcement Speakers: BoJ Governor Ueda; ECB's Lagarde; Fed's Bowman, Schmid Supply: Australia Credit Ratings: Morningstar DBRS on France; Scope Ratings on France; Moody's on Germany MARKET WRAP Stocks closed well in the green on Thursday, with the Nasdaq outperforming, although gains were broad-based with the RSP +0.5%. Sectors were predominantly firmer, with gains led by Technology, Consumer Discretionary and Utilities. Consumer Staples and Financials underperformed, closing marginally lower. The hawkish Fed reaction seen on Wednesday was broadly pared across markets on Thursday, with participants instead focusing on improved Fed credibility in its efforts to return inflation to target following the rate hike and Chair Warsh's steadfast commitment to restoring price stability, despite pressure from US President Trump for lower rates. This view helped support lower yields across the curve, resulting in a bull flattening, with the long end outperforming. Lower oil prices also supported the move in Treasuries. Oil prices settled in the red after several encouraging updates regarding the Houthis and Saudi Arabia. China reportedly pressed Iran to help rein in the Houthis following a Saudi appeal; Saudi Arabia reportedly asked Oman to seek a two-week truce with the Houthis; and Pakistan's Army Chief urged Iran to convince the Houthis not to attack Saudi Arabian energy facilities. Nonetheless, geopolitical risks remain, with Trump telling Axios he is at a critical juncture regarding what to do next with Iran. In FX, the Dollar was lower, while the Pound underperformed after the BoE held rates as expected and announced a gradual wind-down of QT through 2034. The Bank also announced it is halting APF gilt sales until at least April 2027 while it considers selling gilts directly to the Government. The policy statement itself was mixed, but markets appeared to focus on the changes to the Bank's bond programme (more below). The Antipodeans outperformed amid the risk-on tone, while precious metals benefited from lower yields, with gold rallying on Thursday. Attention turns to the BoJ overnight, ahead of the return of Fed speakers on Friday. US DATA/BOE JOBLESS CLAIMS: Initial jobless claims fell to 196k in the week ending September 12th (exp. 208k, prev. 206k), while the four-week moving average declined to 203.25k from 206k, continuing to point to relatively low levels of layoffs. Continuing claims (w/e September 5th) fell notably to 1.730mln (exp. 1.780mln, prev. 1.769mln), while the insured unemployment rate declined to 1.1% from 1.2%. In the unadjusted data, initial claims fell by 24,630 (-13.9%) to 152,286, a larger decline than the seasonal factors had expected (-16,515, or -9.3%). Looking at the advance non-seasonally adjusted state data, the largest declines were seen in California (-4,598), Texas (-3,001), Michigan (-2,156), New York (-2,091), New Jersey (-1,703), and Illinois (-1,505), while Kentucky (+1,034) saw the largest increase. Overall, the report was stronger than expected, with both initial and continuing claims falling and the unadjusted data showing layoffs declining by more than normal seasonal patterns would imply. Analysts at Pantheon Macroeconomics write " the very low trend in initial claims is showing little sign of shifting. The exceptionally depressed number last week might reflect seasonal adjustment issues related to Labor Day, but the underlying picture remains encouraging". PENDING HOME SALES: Pending home sales rose 0.3% M/M in August, against expectations for 2% rise, while July's print was revised down to -2.6% from -2.3%. On a regional basis, pending home sales increased in the South and West but declined in the Northeast and Midwest. NAR Chief Economist Lawrence Yun said, “Buyers steadily entered into contracts in August even though mortgage rates increased,” but added that the housing market remains sluggish, with higher mortgage rates offsetting the increased buying power from job gains and income growth outpacing home price growth. BUILDING PERMITS/HOUSING STARTS: Building Permits fell 2.7% in August to 1.394mln (exp. 1.400mln, prev. 1.433mln); single-family authorisations declined 1.8% to 878k, while authorisations for units in buildings with five units or more were at 467k. Housing Starts fell 2.6% to 1.275mln (exp. 1.320mln, prev. 1.309mln); however, single-family starts jumped 7.6% to 918k, while starts for units in buildings with five units or more were at 344k. Oxford Economics highlight that the weakness in starts was led by the multifamily sector, but the solid increase in single-family starts posted a solid increase. The consultancy notes that "the more forward-looking permits data suggest the August pace of single-family starts won’t be sustained in September." PHILLY FED: The Philadelphia Fed Manufacturing Index fell to 37.8 in September (exp. 30.5, prev. 47.4), but remained above expectations. New Orders edged down to 29.2 (prev. 30.1) and Shipments were unchanged at 27.7, pointing to continued strength in regional manufacturing activity. Labour indicators softened but remained expansionary, with Employment falling sharply to 11.8 (prev. 27.9), largely reversing August's jump, while the Average Workweek eased to 18.0 (prev. 26.5) but remained elevated. Price pressures picked up again, with Prices Paid rising to 48.6 (prev. 40.9) and Prices Received jumping to 31.3 (prev. 17.7), its highest since April. Looking ahead, firms remained optimistic despite some moderation in the headline outlook, with Future Business Conditions falling to 52.9 (prev. 73.6), Future New Orders to 62.3 (prev. 66.0), and Future Shipments to 61.1 (prev. 63.5). Notably, Future Employment strengthened to 50.6 (prev. 35.4), while future price pressures increased substantially, with Prices Paid rising to 71.3 (prev. 62.9) and Prices Received to 72.3 (prev. 59.8). Future CAPEX remained elevated but eased to 37.1 (prev. 48.2). Overall, the survey points to continued strong manufacturing growth and an optimistic six-month outlook, albeit alongside renewed current and expected price pressures. BOE: The BoE held Bank Rate at 3.75% in a 6-3 vote, as expected. Greene, Mann and Pill again backed a 25bps hike, and Lombardelli stayed with the majority. The characterisation of second-round effects remained at “Little evidence so far of material second-round effects in price and wage-setting”. However, the MPC said inflation risks are tilted further to the upside than in July, and that it is "not appropriate to wait too long" for evidence of second-round effects, whilst noting that risk of material second-round effects has increased and is likely to rise further if energy prices stay elevated. The QT announcement, however, was a dovish surprise for gilts. The MPC unanimously agreed on a multi-year plan to reduce the stock to zero by 2034, at an average GBP 46bln a year with GBP 20bln of annual sales, and will keep GBP 120bln of the longest-dated gilts to back banknotes. Further, The BoE is pausing APF auctions until at least April 2027 while it considers selling gilts directly to the Government. Gilts rallied on the smaller long-end supply, the pause in market sales and the prospect of sales bypassing the market. GBP fell as lower yields and the absence of any hawkish surprises outweighed the tougher inflation language. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 12 TICKS HIGHER AT 106-05+ Yield curve bull flattens, reversing post-Fed move as Fed credibility gets a boost following Wednesday's hike. THE DAY: Treasury yields were lower across the curve on Thursday, with Treasuries and the broader market reversing much of the post-Fed move. Many have cited improved Fed credibility following Wednesday's hike, with the decision reinforcing the Fed's commitment to returning inflation to target despite pressure from US President Trump for lower rates. Also supporting Treasuries was the move lower in the crude complex. There was little new on the US/Iran front, but several constructive reports emerged regarding the wider region: 1) China reportedly pressed Iran to help rein in the Houthis following a Saudi appeal; 2) Saudi Arabia reportedly asked Oman to seek a two-week truce with the Houthis; and 3) Pakistan's Army Chief urged Iran to convince the Houthis not to attack Saudi Arabian energy facilities. The reports helped oil settle in the red, although geopolitical risks remain, with Trump telling Axios he is at a critical juncture regarding what to do next with Iran. Elsewhere, US data was mixed. Jobless Claims were strong, maintaining the recent trend of low claims. However, Housing Starts and Building Permits missed expectations, while the Philly Fed index declined M/M but still beat the consensus. Pending Home Sales rose 0.3% M/M, below the 2.0% forecast. Attention overnight will turn to the BoJ rate decision, where a 25bps hike is widely expected. Meanwhile, Fed speak resumes on Friday with Bowman and Schmid scheduled, followed by Williams several times next week. Next week also sees the 2-, 5- and 7-year Treasury auctions. SUPPLY Notes US sold USD 19bln of 10-year TIPS; tail 1.9bps US to sell USD 69bln of 2yr notes on September 22nd, USD 70bln of 5yr notes on Sept. 23rd, and USD 44bln of 7yr notes on Sept. 24th; all to settle Sept. 30th US to sell USD 28bln of 2yr FRN on Sept. 23rd, to settle on Sept. 25th. Bills US sold 4-wk bills at high-rate 3.820%, B/C 3.02x; sold 8-wk bills at high-rate 3.920%, B/C 3.02x US to sell USD 92bln of 13-wk bills and USD 79bln of 26-wk bills on September 21st; all to settle on Sept. 24th STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Oct 13.9bps (prev. 12.5bps), Dec 32.2bps (prev. 31.8bps) EFFR at 3.63% (prev. 3.63%), volumes at USD 90bln (prev. USD 100bln) on September 16th SOFR at 3.62% (prev. 3.64%), volumes at USD 2.931tln (prev. USD 2.952tln) on September 16th NY Fed RRP op demand at 0.28bln (prev. 5.38bln) across 3 counterparties (prev. 4) on September 17th Treasury Buyback [Liquidity support, 7-10-year nominal coupons, max USD 4bln]: Accepts USD 2.385bln of USD 9bln offers, accepts 6 of 10 eligible securities CRUDE WTI (X6) SETTLES USD 0.52 LOWER AT 101.91/BBL; BRENT (Z6) SETTLES USD 0.83 LOWER AT USD 99.93/BBL The crude complex was lower as a series of de-escalatory headlines appeared to outweigh continued Middle East supply risks. On the former, China reportedly pressed Iran to help rein in the Houthis following a Saudi appeal, while Saudi Arabia reportedly asked Oman to seek a two-week truce with the Houthis, with both headlines prompting downside in energy benchmarks. Meanwhile, the Pakistani Army Chief reportedly urged Iran to convince the Yemeni Houthis to not attack Saudi Arabian energy facilities, according to Kan's Kais. Nonetheless, the usual Iranian rhetoric continued, with a political adviser to the Supreme Leader stating that the Strait of Hormuz will not be reopened until Trump and Netanyahu are “brought down from the seat of power”. On the supply side, some Israeli journalists shared an image of what appeared to be smoke rising from an oil facility in Yanbu, Saudi Arabia, following a Houthi attack - albeit this was never confirmed. Separate reports later suggested that three pumping stations along Saudi Arabia's East-West pipeline were damaged in last week's attack, versus two previously reported, highlighting the continued risks to Saudi energy infrastructure despite the more constructive diplomatic headlines. As such, WTI (X6) fell to a low of USD 94.64 from a peak of USD 97.73/bbl, while Brent (Z6) traded between USD 97.92 and USD 101.14/bbl. EQUITIES CLOSES: SPX +1.14% at 7,638, NDX +1.73% at 29,447, DJI +0.61% at 51,783, RUT +0.55% at 2,875 SECTORS: Technology +2.20%, Consumer Discretionary +1.43%, Utilities +0.86%, Health +0.64%, Materials +0.62%, Communication Services +0.60%, Energy +0.55%, Real Estate +0.33%, Industrials +0.21%, Consumer Staples -0.01%, Financials -0.10% EUROPEAN CLOSES: European Closes: Euro Stoxx 50 +0.94% at 6,325, DAX +0.77% at 25,733, CAC 40 +0.57% at 8,187, FTSE 100 +1.19% at 10,816, SMI +0.57% at 13,947, IBEX 35 +1.00% at 19,832, PSI +1.37% at 9,671, AEX +0.43% at 1,101. STOCK SPECIFICS: Nike (NKE): Appointed Alexandre Arnault, Deputy CEO of LVMH’s Moët Hennessy, to its board Arm Holdings (ARM): CEO said demand for the company's technology has never been stronger and is more confident in its prospects than at the July earnings call Generac Holdings (GNRC): Struck a deal with Amazon to supply backup power generators for its data centres GFL Environmental (GFL): KKR, Energy Capital Partners and Blackstone are bidding jointly for the company, while Brookfield Asset Management and IFM Investors have formed a rival consortium Lennar (LEN): Quarterly metrics disappointed and lowered FY delivery outlook amid deteriorating housing conditions and persistently high mortgage rates Qiagen (QGEN): Attracting interest from multiple private equity firms, with expectations that shareholders may demand at least USD 50/shr Lucid Group (LCID): Partners with Bolt to deploy at least 25k Level 4 autonomous vehicles across Europe CoreWeave (CRWV): Announces proposed USD 3.0bln convertible senior notes offering Nvidia (NVDA) CEO Huang says AI safety is paramount; Nvidia (NVDA) to sell twice as many chips next year as this year. Nebius (NBIS) confirms it will hike prices for on-demand CPU and GPU Services; Will raise GPU rates for Nvidia (NVDA) H100, H200, B200 and B300 Highpeak Energy (HPK) reportedly exploring sale after receiving takeover interest, according to sources Northrop Grumman (NOC) says demand remains the strongest management has seen in more than 20 years US FX WRAP The Dollar Index was lower, paring some of its post-Fed strength to the benefit of most G10 FX peers. In terms of the broader reversal in US assets, Treasury yields were lower across the curve, with some citing improved Fed credibility as markets appeared to take greater confidence in Chair Warsh's commitment to return inflation to target. Elsewhere, Dollar-specific newsflow was fairly light; despite plenty of US data, none of it was tier one and it ultimately failed to move the needle. Jobless Claims were strong, maintaining the recent trend of low claims. However, Housing Starts and Building Permits missed expectations, while the Philly Fed index declined M/M but still beat the consensus. Pending Home Sales were soft. Ahead, traders await the end of the Fed blackout this evening, with Bowman and Schmid scheduled to speak on Friday, followed by Williams a couple of times next week. As always, the Middle East situation continues to be closely watched, with little new on the US/Iran front but several constructive reports regarding the wider region: 1) China reportedly pressed Iran to help rein in the Houthis following a Saudi appeal; 2) Saudi Arabia reportedly asked Oman to seek a two-week truce with the Houthis; and 3) Pakistan's Army Chief urged Iran to convince the Houthis not to attack Saudi Arabian energy facilities. The Pound was the clear G10 laggard and saw losses against the Greenback following the latest BoE confab. Sterling fell after the Bank kept rates on hold at 3.75% in a 6-3 vote split, as expected. Overall, the meeting offered balanced arguments on the economy, with the statement highlighting that inflation risks remain tilted to the upside and adding that waiting too long for evidence of second-round effects would not be appropriate. In totality, traders could take mixed signals from the announcement, as it left the door more open to a November move while simultaneously pushing back against some of the more hawkish market pricing. Governor Bailey said that the outlook is too uncertain to judge market bets on 4 rate hikes. GBP pressure was likely aided by UK yields easing from their highs after the Bank announced it would pause APF gilt sales until April 2027 and confirmed reports that it would not sell long-dated gilts into the market. Elsewhere, G10 FX generally benefited from the aforementioned Dollar weakness rather than much currency-specific newsflow. High-beta FX was supported by the return of risk-on sentiment, while Japanese Yen watchers await the BoJ overnight, where policymakers are widely expected to hike rates by 25bps to 1.25%, with money markets fully pricing such a move. ECB's Zigman was also on the wires, albeit with little market reaction, stating that market pricing does not determine the ECB's next steps and that there is considerable optimism around growth. Zigman added that there are no major second-round effects at present and that growth would be at risk if inflation is not tackled. The MXN was unphased to reports in Politico that President Trump and Mexican President Sheinbaum spoke by phone Wednesday as the two countries close in on a trade deal. Sources described the conversation as "so-so" and said that it “created a bit of noise” as “new topics” were introduced into the leaders’ discussion. A US official described the call as constructive and noted that talks continue to move in a positive direction - pushing back on any notion that the call did not go well.