Stocks and bonds sold after Fed rate hike - Newsquawk US Market Wrap

• SNAPSHOT: Equities down/flat, Treasuries flatten, Crude down, Dollar up, Gold down.
• REAR VIEW: FOMC hikes rates by 25bps, as expected; Overall hawkish FOMC & leaves the door open to further action; Updated median SEP sees 1 more hike this year; Saudi reportedly look to resume half of key oil pipeline within days; Optimistic Araghchi commentary; US met with Houthis; Strong US Retail Sales; Import and Export prices hotter than expected; AAPL considers return to server market, has spoken with NVDA to use network tech.
• COMING UP: Data: EU Inflation Final (Aug), US Initial Jobless Claims (Sep/12), Housing Starts (Aug), Building Permits Prelim. (Aug), Atlanta Fed GDP (Q3), New Zealand Trade Balance (Aug) Events: BoE Policy Announcement, CNB Policy Announcement Speakers: US President Trump; ECB's Lane Supply: Spain, France, US.

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MARKET WRAP

The overall reaction to the FOMC rate decision and press conference was hawkish. The Fed hiked rates by 25bps as expected in a unanimous decision, while the median projection saw another hike by year-end before rates remain on hold throughout 2027. The statement reiterated the Fed's commitment to price stability, a message echoed by Chair Warsh in the press conference against the backdrop of a labour market at or near full employment and strong economic growth. For a more in-depth Fed summary, please see below.

Indices largely finished lower, although the Nasdaq was little changed, while the Dow lagged and the RSP fell 0.8%. Sectors were predominantly lower, with Energy, Financials and Materials lagging, while Tech, Health Care and Utilities outperformed, albeit with minimal gains.

Energy stocks tracked crude prices lower, with the complex pressured by more constructive geopolitical commentary. Iranian Foreign Minister Araghchi said the MoU with the US remains in effect and that Iran wants a return to a peaceful solution, adding, "We are not interested in continuing the conflict, and we look forward to returning to a diplomatic solution." Meanwhile, reports suggested US officials met with the Yemeni Houthis in Oman over the weekend, adding further pressure to crude a Houthis were committed to the 2025 ceasefire, and would not attack US and Israeli ships in the Bab al-Mandab. Elsewhere, source reports suggested half of Saudi Arabia's key East-West oil pipeline will resume operations within days.

The Treasury curve flattened following the FOMC rate decision, updated SEP and Warsh's press conference, with the 10-year yield reclaiming 5.00% while the 2-year rose to around 4.74%, remaining at levels not seen since 2007. The hawkish Fed supported the Dollar at the expense of its G10 peers, with EUR/USD falling below 1.15 and USD/JPY rising above 156.00. Gold and silver were also sold, while Bitcoin saw marginal gains, although the strength follows the notable weakness on Tuesday after the Senate failed to pass the CLARITY Act.

Elsewhere, US Retail Sales were stronger than expected, while Import and Export prices were above expectations. UK CPI and Services inflation were in line with expectations, doing little to shift the dial ahead of the BoE rate decision on Thursday. Friday also sees the BoJ rate decision, where the bank is expected to hike by 25bps.

FED

FOMC: The Fed hiked rates by 25bps as expected, taking the target range for the federal funds rate to 3.75-4.00%, with the decision unanimous. The statement saw only minor changes, with the Fed saying the rate hike would help return inflation to target in a more timely manner, while reiterating its commitment to price stability. The Fed maintained that inflation remains elevated, although it dropped the previous language attributing this in part to supply shocks.

On activity, the Fed maintained that the economy is expanding at a solid pace, while adding that domestic spending has remained resilient despite uncertainty stemming in part from geopolitical developments. It maintained that productivity growth is strong, while describing capital investment as "robust", versus "strong" previously. Labour market language was broadly unchanged, with the Fed reiterating that job gains have kept pace with growth in the workforce and the unemployment rate has changed little.

DOT PLOT/SEP: Regarding the dot plot, Warsh did not submit forecasts again, with 18 participants submitting projections. The dots were hawkish, with the median seeing another 25bp hike in 2026. Twelve participants pencilled in one further hike this year, four saw two additional hikes, while just two saw no further hikes. The median remains at 4.125% through end-2027, implying one further hike this year followed by rates remaining on hold throughout 2027, before easing to 3.875% in 2028 and 3.625% in 2029. The longer-run rate was lifted to 3.2% from 3.1%. Growth forecasts were raised by 0.1ppts in both 2026 and 2027, while 2028 and the longer-run projections were maintained. Unemployment projections were lowered to 4.1% across 2026-28, while the longer-run rate was maintained at 4.2%. Both headline and core PCE inflation projections were raised for 2026 and 2028, while the 2027 projections were maintained.

FED CHAIR WARSH PRESSER: The overall message was a familiar one from Warsh, with price stability remaining the primary focus against the backdrop of a strong economy and a labour market at or near full employment. Warsh said he does not believe the Fed will need to damage the labour market to achieve its inflation objective, reiterating that ensuring price stability is necessary to support durable economic growth.

Warsh continued to avoid forward guidance, reiterating that the Fed is “committed to a discipline, not a decision.” With the labour market more or less at full employment and the economy strong, he said the Fed's primary focus is on price stability. Warsh repeatedly pointed to Wednesday's action as evidence that policymakers are serious about returning inflation to target. He also reiterated he does not focus on one particular data point, as he looks at the trends.

Asked whether policy is restrictive, Warsh reiterated that he finds it difficult to characterise financial conditions as restrictive, although he acknowledged that the Fed had removed some accommodation with Wednesday's rate hike. When asked whether markets had led the Fed into hiking rates, Warsh stressed that the move was “our decision.” He also acknowledged that the Fed cannot control individual prices, such as energy, but said it is the central bank's responsibility to prevent second- or third-round effects from developing.

Warsh also acknowledged the recent rise in bond yields, attributing it to three broad factors: the strength of the US economy, increased demand for capital amid robust CapEx, and geopolitical developments.

Overall, the press conference carried a hawkish tone, with Warsh continuing to emphasise the price-stability side of the Fed's mandate while speaking positively about the strength of the US economy and labour market. Notably, he did not characterise Wednesday's hike as a risk-management move, nor did he repeat language from the previous press conference suggesting that tighter financial conditions were doing some of the Fed's work. Instead, Warsh repeatedly framed the hike as evidence of the Fed's determination to return inflation to target.

US DATA

RETAIL SALES: US retail sales rose 1.2% M/M in August, above the expected +0.8% and rising from July's revised -0.5% print. Core retail sales also impressed as they rose 1.4% (exp. +0.6%, prev. -0.2%), with retail sales ex-gas/autos jumping 1.2% (prev. -0.3%). Retail control rose 1.4%, above Wall St. consensus of 0.4% and the prior -0.4%. For the headline beat, Oxford Economics highlight much of the strength reflected a bounce back in non-store sales, which had fallen sharply in July, and was largely seasonal noise driven by shifts in the timing of Amazon’s Prime Day shopping event. Rising gas prices also boosted gasoline station sales. Even accounting for that, gains in most spending categories were decent, led by discretionary sectors such as food services, electronics, and sports and recreation. As Oxford Economics writes, the headline rebound was juiced by a rebound in non-store sales, but the underlying details still point to a decent 2.8% annualized rise in real consumer spending in Q3. The squeeze from higher gasoline prices will intensify heading into the fall, but the tailwind from rising financial wealth means higher-income consumers are so far offsetting that.

IMPORT/EXPORT PRICES: US import prices rose 0.7% M/M in August (exp. +0.4%, prev. -0.3% revised from -0.4%), with the increase driven by nonfuel import prices (+0.8%), which more than offset a 0.1% decline in fuel prices. Within nonfuel imports, industrial supplies & materials rose 2.0%, while capital goods prices increased 0.9%, driven by higher prices for computers, peripherals and semiconductors, industrial machinery and telecommunications equipment. Consumer goods ex-autos also rose 0.5%. Notably, import prices from China jumped 1.0%, the largest monthly increase since the series began in 2004, driven by computer and electronic products. On an annual basis, overall import prices accelerated to 7.0%, the largest increase since August 2022, while nonfuel import prices rose 5.5%, the largest since May 2022. Export prices increased 0.6% M/M (exp. +0.5%, prev. -1.4% revised from -1.3%), with agricultural prices rising 0.5% and nonagricultural prices increasing 0.7%, including a 1.4% rise in industrial supplies & materials. Overall, the report points to renewed imported price pressures beneath the energy component, particularly across industrial inputs, capital goods and Chinese imports. Oxford Economics highlight the rising capital goods prices, noting that "The rapid buildout of AI infrastructure will keep this category running hot, while incentives embedded in the One Big Beautiful Bill Act may lead to further prices increases in capital goods beyond computer accessories."

NAHB: NAHB Housing Market Index fell to 32 in September from 35, beneath the expected 34. Within the report, current sales conditions fell four points to 35, sales expectations in the next six months dropped to 37 (prev. 43), while traffic of prospective buyers held steady at 23. Overall, homebuilders’ confidence has been hit by the renewed rise in mortgage rates, with the most recent MBA data showing that the average rate on a 30-year conventional mortgage stood last week at 6.97%, up almost a full percentage point since February.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 4+ TICKS LOWER AT 105-25+

Yield curve flattens after hawkish FOMC. At settlement, 2-year +5.2bps at 4.723%, 3-year +3.5bps at 4.807%, 5-year +2.5bps at 4.862%, 7-year +1.5bps at 4.933%, 10-year +0.6bps at 5.012%, 20-year -1.4bps at 5.395%, 30-year -1.4bps at 5.355%.

THE DAY: T-notes had gradually risen ahead of the FOMC, but Treasuries tumbled across the curve in the immediate aftermath of the Fed rate decision. The Fed hiked rates by 25bps as expected, with the decision unanimous, while reiterating its commitment to price stability within the statement. Warsh did not submit forecasts, but the vast majority of officials expect at least one further rate hike by year-end, with the median seeing rates then remaining on hold throughout 2027.

The press conference delivered a familiar message from Chair Warsh, emphasising price stability against the backdrop of employment at or near full employment and a strong US economy. He continued to avoid forward guidance but stressed the Fed's determination to return inflation to target.

Yields rose across the curve in the immediate wake of the Fed statement and press conference, with the 10-year yield reclaiming 5.00%. The curve ultimately bear flattened on the day, with the front end leading the sell-off while the long end finished modestly firmer. Money market pricing also shifted hawkishly, with October now seen as roughly a coin toss (vs. c. 8bps of tightening priced before the meeting, adjusting for Wednesday's hike), while around 32bps of additional tightening is priced by December, vs. 24.5bps pre-Fed on the same adjusted basis.

SUPPLY

Notes

• US to sell USD 19bln of 10yr TIPS on Sept. 17th; to settle on Sept. 30th

Bills

• US sold 17-wk bills at a high rate of 4.030%, B/C 2.72x
• US to sell USD 72bln of 17-wk bills on September 16th; to sell USD 90bln of 4-wk bills and USD 85bln of 8-wk bills on Sept. 17th; all to settle on Sept. 22nd

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 13bps (prev. 7.8bps pre Fed), Dec 31.7bps (prev. 24.5bps pre Fed); Prior adjusted for today's hike.
• EFFR at 3.63% (prev. 3.63%), volumes at USD 100bln (prev. USD 91bln) on September 15th
• SOFR at 3.64% (prev. 3.62%), volumes at USD 2.952tln (prev. USD 2.861tln) on September 15th
• NY Fed RRP op demand at 5.38bln (prev. 0.70bln) across 4 counterparties (prev. 2) on September 16th

CRUDE

WTI (V6) SETTLED USD 3.40 LOWER AT 102.43/BBL; BRENT (X6) SETTLED USD 2.92 LOWER AT 105.83/BBL

The crude complex saw losses, paring some of Tuesday's extensive strength, as participants await further Middle East or supply updates. Regarding headline catalysts for the downside, there were a few, coupled with an unexpected chunky crude build in the weekly private inventory metrics last night. Back to the headline drivers, China's Foreign Minister met with their Iranian counterpart, encouraged Iran and the US to exercise rationality, and urged all parties to take effective measures to reopen the Strait. Meanwhile, US/Iran, Iranian FM Araghchi stated the MoU with America is in effect and want to return to a peaceful solution. Furthermore, source reports suggested that US officials met with Yemeni Houthis in Oman over the weekend, and Houthis told the US they remain committed to 2025 ceasefire and will avoid hitting US or Israeli ships.

Away from geopolitics, but on the supply footing in the Middle East, Saudi reportedly look to resume half of key oil pipeline within days, which pushed WTI and Brent to session lows of USD 100.97/bbl and 104.00/bbl, respectively - vs earlier highs of 105.63 and 108.59/bbl.

Note, there was little move after the FOMC hiked rates by 25bps, as expected but the Dollar strengthened notably.

EQUITIES

CLOSES: SPX -0.40% at 7,555, NDX +0.03% at 28,945, DJI -1.21% at 51,463, RUT -0.32% at 2,861.

SECTORS: Technology +0.10%, Health +0.06%, Utilities +0.01%, Industrials -0.12%, Consumer Staples -0.53%, Communication Services -0.62%, Real Estate -0.66%, Consumer Discretionary -0.68%, Materials -0.73%, Financials -1.60%, Energy -2.97%.

EUROPEAN CLOSES: DAX: +0.53% at 25,538, FTSE 100: +0.28% at 10,688, CAC 40: +0.62% at 8,141, Euro Stoxx 50: +0.57% at 6,272, AEX: +0.02% at 1,096, IBEX 35: +0.41% at 19,636, FTSE MIB: +0.80% at 51,969, SMI: +0.43% at 13,869, PSI: +1.00% at 9,541.

STOCK SPECIFICS:

• Microsoft (MSFT) raised its quarterly dividend 8% to USD 0.98/shr
• SK Hynix in talks with Intel (INTC) about a deal to make memory chips in the US for the first time.
• Huntington Bancshares (HBAN) cuts FY27 growth outlook.
• Trip.com (TCOM): EPS and revenue topped.
• J.B. Hunt Transport Services (JBHT) sees Q2-to-Q3 earnings dropping 5-10% amid higher costs.
• Union Pacific (UNP) was upgraded at UBS as the bank expects strong volume growth to drive better-than-expected earnings through 2028.
• Twist Bioscience (TWST) announced an agreement with Lilly TuneLab, a collaborative AI/ML drug discovery platform created by Eli Lilly.
• Apple (AAPL) reportedly considering a return to the server market and has spoken with NVIDIA about using its networking technology, according to The Information.

FX

The Dollar saw strength, and surged to session highs in wake of the latest FOMC confab, resulting in a broad hawkish reaction across markets. Overall, the Fed hiked rates 25bps as expected in a unanimous decision. In the updated SEPs, the median sees another 25bps hike in 2026, and is at 4.125% through end-2027, implying one further hike this year followed by rates remaining on hold throughout 2027, before easing to 3.875% in 2028 and 3.625% in 2029. In the Chair Warsh presser, the overall message was a familiar one, with price stability remaining the primary focus. While the FOMC dominated the calendar on Wednesday and was the primary catalyst, there was some tier 1 data, albeit had no impact on the Greenback; retail sales surged, and notably above expected, although desks cited seasonality reasons, while import/export prices also lifted above Wall St. consensus.

As mentioned, G10 FX was lower across the board vs. the Dollar, and seeing similar losses, on account of the aforementioned, as opposed to much currency-specific newsflow. The Pound had regional inflation metrics to digest; the headline rose from the prior (in-line), Core Y/Y and Services were unchanged from the previous month, and as such the data is unlikely to shift views at the MPC into Thursday’s confab, where rates are expected to be held steady in a 6-3 vote split. Following the data, Cable saw some two-way action before eventually moving lower as traders curtailed their rate hike bets.