Markets choppy on geopolitics, more Fed speak and ORCL data centre woes - Newsquawk US Market Wrap

• SNAPSHOT: Equities mixed, Treasuries steepen, Crude up, Dollar up, Gold down
• REAR VIEW: US and Iran reportedly discuss phased deal to reopen Hormuz and end US blockade; Weak US 7yr note auction; Fed's Williams says another rate hike is reasonable by year-end; Fed's Paulson says may need to raise rates again to lower inflation; Initial claims and continuing claims little changed W/W; Banxico, SNB and Riksbank hold rates as expected, Norges Bank hikes by 25bps; Senior Iranian adviser threatens new scene on the Red Sea and Bab al-Mandeb if US attacks again; ORCL sends force majeure notice over New Mexico data centre
• COMING UP: Holiday: China Mid-Autumn Festival Market Holiday. Data: German GfK Consumer Confidence (Oct), US Durable Goods Orders (Aug), Atlanta Fed GDP (Q3). Speakers: Fed's Williams, Hammack, Schmid; ECB's Vujcic; BoE Governor Bailey. Supply: Australia. Credit Ratings: Moody's on the EU, Italy; Scope Ratings on the EU.

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MARKET WRAP

Stocks ultimately finished the day mixed in choppy trade. SPX, NDX and RUT were flat, while the DJI sold off and the RSP dropped. Sectors were predominantly lower, with Utilities, Materials and Staples lagging, while Communication Services, Health Care and Energy outperformed. The stock highlight was Oracle (ORCL), which tumbled after declaring force majeure at its New Mexico data centre, also weighing on Bloom Energy (BE) and Blue Owl (OWL), given both have exposure to the project. ORCL pared the majority of its losses but still closed lower by 3%.

Treasuries saw choppy trade, with an initial bull steepening ultimately reversing into bear steepening. T-notes initially tracked gains in European government bonds following Wednesday's sharp global bond sell-off. However, front-end gains ultimately faded before the long end led the subsequent sell-off. The 7-year auction was soft, while the Treasury's 20-30yr buyback accepted just USD 4.08bln against a maximum of USD 6bln.

In the US, Fed speak saw FOMC Vice Chair Williams note it is reasonable to see another rate hike by year-end, while Paulson said another hike may be required to curb inflation. Hammack also reiterated her inflation concerns. US data was light, with initial jobless claims remaining below 200k and the four-week average declining to 202.25k from 204k. Meanwhile, the preliminary Chicago Fed unemployment rate nowcast remained at 4.1% ahead of next Friday's BLS jobs report.

Crude prices settled firmly higher despite fresh reports pointing towards a potential US-Iran deal to reopen the Strait of Hormuz and lift the US blockade. However, escalation risks remained elevated, with Iranian officials warning the conflict could expand across the region, while the Houthis said they would continue their “siege for a siege” approach. Post-settlement, the Houthis announced they had targeted Saudi Aramco facilities in Yanbu and a sensitive target in Riyadh, adding further upside to crude.

In FX, the Dollar strengthened against its peers for a fourth consecutive day this week, supported by continued inflation concerns as US yields and oil prices moved higher. Elsewhere, the SNB held rates at 0% as expected but adjusted its FX intervention language, while the Riksbank held rates alongside hawkish commentary and projections. Norges Bank delivered a 25bps hike against split expectations, while Banxico unanimously left rates unchanged but adjusted its forward guidance.

CLAIMS

Initial jobless claims edged down to 197k in the week ending September 19th (exp. 201k, prev. 198k revised from 196k), while the four-week moving average declined to 202.25k from 204.0k, continuing to point to subdued layoffs. Continuing claims (w/e September 12th) edged up to 1.719mln (exp. 1.750mln, prev. 1.717mln revised from 1.730mln), although they remained comfortably below expectations, while the insured unemployment rate was unchanged at 1.1%. In the unadjusted data, initial claims rose by 10,243 (+6.7%) to 163,811, almost exactly in line with the seasonal factors, which had expected an increase of 10,475 (+6.8%). Looking at the advance non-seasonally adjusted state data, the largest increases were in California (+2,522), Hawaii (+1,540), New York (+1,119), Illinois (+779), and Texas (+676), while the largest declines were in Massachusetts (-508), Arkansas (-329), Kentucky (-327), Washington (-147), and Arizona (-141). Pantheon Macroeconomics said claims continue to point to a stable labour market, and sees an unchanged 4.1% unemployment rate as most likely, albeit with risks skewed to the downside.

FED

WILLIAMS: FOMC Vice Chair Williams said that the big challenge is inflation, and the Fed needs to get it back to target in a timely manner. He said it is reasonable to see another rate hike by year-end, but the time for explicit or very direct forward guidance is over. The NY Fed President noted that the economy has been remarkably resilient and downside risks to achieving maximum employment has receded. Williams acknowledged they are seeing pretty strong demand from AI, and while short-run inflation expectations have been more encouraging, longer-term have not. Williams sees a tug of war between higher trend growth pushing R-Star up and demographics pulling it down. He added that real rate expectations are a large part of higher yields, but no one knows if higher yields will last.

PAULSON (2026 voter): Said the September inflation numbers drove the rate hike and the best you can say about inflation is that it has not got worse. She will support doing what is needed to get inflation back to 2% and notes that the Fed may need to raise interest rates again to lower inflation. Paulson described the labour market as stable, the economy as resilient with signs of increased momentum and underlying inflation remaining stubbornly high.

HAMMACK (2026 voter): Said price stability is the responsibility of central banks. The 2026 voter noted that inflation remains elevated amid solid output demand and the inflation risk is tilted towards the upside. Hammack said supply shocks are a notable challenge for Fed policy right now, and the longer inflation remains high, the harder it is to bring it back to target. Lastly, she said the labour market remains close to full employment.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 5+ TICKS LOWER AT 104-27+

T-notes chop on hawkish Fed speak, volatile geopolitics, weak auction and underwhelming buyback operation. At settlement, 2-year +1.7bps at 4.914%, 3-year +1.8bps at 4.987%, 5-year +4.6bps at 5.043%, 7-year +5.2bps at 5.101%, 10-year +6.9bps at 5.179%, 20-year +7.5bps at 5.532%, 30-year +7.0bps at 5.467%.

THE DAY: The Treasury curve saw two-way trade on Thursday, with initial bull steepening ultimately reversing into bear steepening. The early Treasury upside was led by the front end despite gains in oil and further hawkish Fed commentary, with FOMC Vice Chair Williams saying it is reasonable to see another rate hike by year-end. The morning bull steepening appeared to track gains in European government bonds following Wednesday's sharp global bond sell-off. However, front-end T-notes ultimately pared their gains, bringing front-end yields back towards unchanged, with the long end leading the sell-off. The curve ultimately settled as a bear steepener, led by the long end.

T-notes briefly moved higher across the curve as oil came under pressure following reports that the US and Iran had discussed a phased deal to reopen the Strait of Hormuz and end the blockade. However, the report included multiple caveats, while an unaffiliated Iranian journalist later pushed back on the report, although official channels have yet to deny it. Meanwhile, NBC News reported that Iranian President Pezeshkian wants a deal with the US before the midterms, ahead of his interview tonight with Fox News. Nonetheless, geopolitical tensions remain elevated, and crude moved higher again post-settlement after the Houthis announced they had targeted Saudi Aramco facilities in Yanbu and a sensitive target in Riyadh.

Elsewhere, the Treasury's 20-30yr buyback accepted just USD 4.08bln against a maximum of USD 6.0bln, with the underwhelming operation adding to pressure at the long end. The 7-year auction was also weak, producing its largest tail since March, although the reception was less alarming than Wednesday's woeful 5-year auction. The 0.7bp tail, below-average bid-to-cover and particularly weak indirect participation pointed to a soft reception despite the significant increase in outright yield since August. Strong direct participation provided some support and kept the dealer takedown close to average.

US data saw jobless claims remain low and stable, with another sub-200k initial claims print bringing the four-week average down to 202.25k from 204k. Meanwhile, the preliminary Chicago Fed unemployment rate nowcast was maintained at 4.1% ahead of the BLS report next Friday.

Supply

Notes

• US sold USD 44bln of 7-year T-notes: Tail 0.7bps.

Bills

• US sold 8-week bills at a high rate of 3.990%, B/C 2.76x; sold 4-week bills at a high rate of 3.850%, B/C 2.61x
• US to sell USD 82bln of 26-week bills and USD 95bln of 13-week bills on September 28th; to sell USD 85bln of 6-week bills and USD 54bln of 52-week bills on September 29th; all to settle on October 1st.

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 17.7bps (prev. 17.7bps), Dec 38bps (prev. 37.1bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 101bln (prev. USD 103bln) on September 23rd
• SOFR at 3.87% (prev. 3.87%), volumes at USD 2.946tln (prev. USD 2.94tln) on September 23rd
• NY Fed RRP op demand at 0.63bln (prev. 0.46bln) across 3 counterparties (prev. 4) on September 24th

CRUDE

WTI (X6) SETTLED USD 2.45 HIGHER AT 94.61/BBL: BRENT (Z6) SETTLED USD 2.10 HIGHER AT 100.22/BBL

Crude prices settled higher despite fresh reports pointing towards a potential US-Iran deal to reopen the Strait of Hormuz and lift the US blockade, as many doubts and hurdles still remain. In the Reuters report, a Senior Iranian official notes the most feasible way would be Iran re-allowing navigation through the waterway in return for the US lifting its blockade and the potential for Iran to regain frozen assets. However, the source noted chances of diplomatic resolve are extremely low given America's "excessive demands", and a senior European official described Iran's demand as a "very long list". Nonetheless, the report sparked a pullback in crude prices from WTI's and Brent's highs of USD 96.78/bbl and USD 102.39/bbl, respectively. In between WTI and Brent settlements, NBC reported that the Iranian President, on the sidelines of the UNGA, noted: “We don’t want it to get to the midterm elections”. He added, “We wish Americans to return to the MOU before the midterms.” More pressure arrived in crude, albeit around half the move has faded at the time of writing. Upside in the European session was in response to the Senior adviser to Iran’s Supreme Leader, linking the Persian Gulf and Red Sea, including the Strait of Hormuz and Bab al-Mandab, could change the battlefield; "The scope of the war may expand to the Indian Ocean and other regions". Additionally, a Houthi spokesperson said they will continue to enforce the equation of "a siege for a siege" and "an escalation for an escalation". Post-settlement, the Houthis announced they targeted Saudi Aramco facilities in Yanbu and a sensitive target in Riyadh, adding to further upside.

Energy updates

• US Energy Secretary Chris Wright has contacted executives at several major US refiners to gauge support for voluntarily restricting diesel exports, Reuters reports, according to three people familiar with the discussions.
• Saudi East-West pipeline is reportedly building up crude volumes, though tanker loadings have yet to resume at Yanbu, Reuters reported.
• Saudi Aramco CEO says that it is studying a "a fourth and a fifth route" for crude oil exports; noted that the Co. can restore disrupted operations within days, Nikkei reported.

EQUITIES

CLOSES: SPX -0.02% at 7,704, NDX +0.03% at 30,479, DJI -0.31% at 51,355, RUT -0.11% at 2,836

SECTORS: Utilities -1.02%, Materials -1.01%, Consumer staples -0.96%, Industrials -0.71%, Real estate -0.37%, Technology -0.32%, Consumer discretionary -0.23%, Financials flat, Energy +0.4%, Health +0.67%, Communication services +1.92%.

EUROPEAN CLOSES: Euro Stoxx 50 -0.43% at 6,273, Dax 40 -0.61% at 25,256, FTSE 100 -0.24% at 10,680, CAC 40 -0.52% at 8,081, FTSE MIB -0.85% at 51,543, IBEX 35 -0.30% at 19,573, PSI +0.54% at 9,685, SMI -0.11% at 13,906, AEX -0.10% at 1,107

STOCK SPECIFICS

• Oracle (ORCL) / Blue Owl Capital (OWL) / Bloom Energy (BE): Lower after Oracle sent a force majeure notice over a New Mexico data centre.
• MGM Resorts International (MGM): Barry Diller withdrew People Inc.'s bid to acquire the remaining stake in MGM Resorts.
• TransUnion (TRU): CFO has made the personal decision to step down.
• Viking Therapeutics (VKTX): Increased common stock offering to USD 225mln from USD 200mln; priced at the low end of the deal range.
• Knife River (KNF): Starboard urged Knife River to improve execution and profitability.
• Delek US Holdings (DK): To sell USD 400mln in convertible senior notes due 2031.
• Dropbox (DBX): Downgraded at Citi to 'Sell' from 'Neutral'.
• GoDaddy (GDDY) has reportedly received a takeover offer from Gen Digital, FT reports citing sources.
• Pepsi (PEP) spokesperson confirms prices of certain chips will go up by low to mid single-digit percentage, aligned with inflation.
• Blue Orca short on Equipment Share (EQPT).
• Meta (META) introduces Horizon Create and Horizon Studio: two new tools built on the agentic creation capabilities of the Meta Horizon Engine; Unity (U) was weighed by the news.
• India's Akasa in talks to buy 200 Boeing (BA) 737 Max aircraft, Bloomberg reports.
• Google (GOOGL) will launch a prototype satellite next week for the first in-orbit test of Project Suncatcher, a research effort exploring whether space could support large-scale AI computing infrastructure; companies including SpaceX and Starcloud are also pursuing plans for low-Earth-orbit data centers to use near-continuous sunlight to power energy-intensive AI computing and avoid terrestrial electricity constraints. Solar-related names saw selling pressure on competition fears.

FX

USD finished higher against its peers for a fourth consecutive day this week, again supported by continued inflation concerns as US yields and oil prices marched higher. Reports of US-Iran progress continue to surface; however, tangible progress is yet to be observed. The latest indication came via an Iranian official speaking to Reuters, who said a phased deal could see Iran resume free navigation through the Strait of Hormuz in exchange for the US lifting its blockade and potentially unfreezing Iranian assets. That said, the official described US demands as excessive and the likelihood of a diplomatic resolution as “extremely low”. Also casting doubt over diplomacy is the ongoing conflict between the Houthis and Saudis, with the former saying it struck Saudi Aramco facilities in Yanbu and a “sensitive target” in Riyadh.

Outside of geopolitics, Fed's Paulson, a 2026 voter, did not share the same conviction as some of her peers who have explicitly called for another 2026 rate hike, saying instead that another hike may be required to curb inflation. She added, however, that the best that can be said about inflation is that it has not worsened. Meanwhile, the continued move higher in US yields reflects persistent concerns around the inflation outlook and whether or not the Fed is behind the curve, although Thursday's long-end weakness was also influenced by Treasury supply dynamics. The 7yr note auction was met with weak demand, producing its largest tail since March, while the Treasury's 20-30yr liquidity-support buyback accepted just USD 4.08bln against the USD 6bln maximum announced on Wednesday. DXY hit highs of 101.398.

In Europe, it was a day of central bank rate decisions. The SNB held rates at 0.00% as expected, although it adjusted its FX intervention language, saying it remains “willing to be active in the foreign exchange market”, versus its previous “increased willingness” to intervene. EUR/CHF rose to around 0.9422 from the 0.9386 open.

The Riksbank held rates as expected, accompanied by hawkish commentary and rate projections. Meanwhile, the Norges Bank hiked rates by 25bps, with expectations split between a hold and a hike. EUR/SEK and EUR/NOK both traded modestly higher.

MXN was hit by Dollar strength, while there was little reaction to Banxico unanimously leaving rates unchanged. However, the central bank adjusted its guidance, saying future decisions will consider the ongoing disinflation process and the expected behaviour of its determinants, including exchange-rate pass-through to consumer prices, slack conditions and inflation expectations. Previously, Banxico had said the Governing Board estimated it would be appropriate to maintain the reference rate at its current level.