Stocks bid, yields down as crude slumps on US/Iran ceasefire reports - Newsquawk US Market Wrap

• SNAPSHOT: Equities up, Treasuries up, Crude down, Dollar down, Gold up.
• REAR VIEW: Ria reports US and Iran have agreed a ceasefire and will be announced in coming days; ECB reportedly ready to raise rates in September; Pakistan reported "significant progress" in high-level diplomatic talks held in Tehran; US mulling returning diplomats to Middle Eastern embassies as soon as this week; Hawkish Fed Collins; Mixed US data; Trump said all mines gone from the international waters of the Strait of Hormuz; Canada announces reciprocal tariffs on US; Solid 2-yr auction; Dismal DKS earnings and guidance.
• COMING UP: Data: Australian CPI (Jul), US Durable Goods (Jul), PCE (Jul), GDP 2nd (Q2), Atlanta Fed GDP (Q3) Speakers: ECB’s Cipollone Supply: Germany, Italy, US Earnings: Nvidia, Salesforce, CrowdStrike.

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MARKET WRAP

Stocks closed in the green on Tuesday, with the Nasdaq outperforming in a tech-led rally. Crude prices slumped on US-Iran optimism, with a further move lower seen in late trade after Russian press RIA reported that the US and Iran are close to a ceasefire agreement that includes freedom of navigation through the Strait of Hormuz. The report also weighed on the Dollar and supported Treasuries and stocks into the closing bell. However, at the time of writing, there has been no confirmation of the report from other outlets.

Elsewhere, sectors were predominantly firmer, with Technology leading the gains, while Energy slumped alongside weaker crude prices. Consumer Discretionary was also pressured by weak Dick's (DKS) guidance, which weighed on peers including Nike (NKE), Lululemon (LULU) and On Holding (ONON).

Treasury yields fell across the curve as oil prices tumbled, with the late RIA report adding to the move. The USD 69bln 2-year auction had little lasting impact but was met with stronger demand than recent averages, albeit was not quite as strong as the July offering despite a lower yield on offer.

US data was mixed, as Consumer Confidence was mixed, new home sales plunged, and Richmond Fed was soft, but the outlook was more encouraging. The only Fed speaker was 2028 voter Collins, who reiterated familiar Fed rhetoric and how she is concerned about price stability of the mandate.

In FX, the Yen and Dollar underperformed, while the Antipodeans led the way amid the upside in stocks. Notably, the Yen failed to benefit from the decline in US Treasury yields. Gold managed to recoup its earlier losses, while silver still settled in the red.

US

COLLINS (2028 Voter) said that current monetary policy is mildly restrictive, and that it would be appropriate to raise interest rates absent evidence of sustained disinflation. Meanwhile, maintaining the current policy rate will need continued evidence that inflation is falling. She acknowledged that the rise in longer-term interest rates should work against a re-acceleration in demand. On inflation, Collins said it is still too high, and that she is concerned about price stability as part of the Fed's mandate. She acknowledged that high prices are pervasive amongs contacts in the New England region. She added she will be looking for evidence in coming months that inflation is durably returning to 2%. She considers disinflation the most likely outcome based on limited additional tariffs and progress on reopening the Strait of Hormuz, but noted there are also less benign scenarios - including rising inflation from the AI buildout and supply shocks. She will be watching whether productivity helps offset inflation, oil prices and changes in inflation expectations. On the labour market, Collins said it is consistent with full employment and an economy growing at near-trend pace. She noted that sharply reduced immigration and population aging should keep the labour force and labour demand in balance, which alongside continued productivity growth could also support gradual disinflation. Overall, the Boston Fed President appears to be focusing on the inflation data to determine her views on rates.

CONSUMER CONFIDENCE: Consumer confidence in August fell to 89.4 from 90.2, and shy of the expected 90.3. The Present Situation Index lifted to 121.2 from 114.4, but the Expectations Index fell by 5.8 points to 68.2. Looking at the present situation, 18.9% of consumers said business conditions were “good” (prev. 19.1% in July) and 17.6% said they were “bad” (prev. 17.9%). Views of the labour market improved as 27.0% said jobs were “plentiful” (prev. 24.4%), while 19.5% said “hard to get” (prev. 21.7%). Looking ahead it wasn't so promising, consumers were less optimistic about future business conditions, more negative about the labour market outlook, and income prospects were less optimistic. Consumers’ write-in responses on factors affecting the economy were slightly more pessimistic in August. References to prices in general, and oil and gas specifically, remain elevated. Conference Board chief economist Dana Peterson wrote “Consumer appraisals of current business conditions were mildly positive. Perceptions of the current labour market improved, reversing three months of moderate decline. Ahead, expectations for household incomes moderated but remained optimistic overall.”

NEW HOME SALES: New home sales tumbled 10.5% in July to 607k, beneath the expected 620k, while June was revised higher to 678k from 628k. New home supply was 9.6 months' worth at current pace (vs. 8.5 months in June) and median sale price was USD 393,800, -0.9% Y/Y. Overall, Oxford Economics writes that the housing market isn’t headed for a downturn, but rising mortgage rates and weaker growth in real disposable income due to elevated inflation will keep any rebound out of sight.

RICHMOND FED: The Richmond Fed Manufacturing Index edged down to 4 in August (exp. 7, prev. 5), signalling that Fifth District manufacturing activity changed little. Under the hood, Shipments improved to 11 (prev. 8), while New Orders eased to 3 (prev. 5) and Employment slipped into contraction at -2 (prev. 2). Other current indicators were somewhat softer, with Backlogs falling sharply to -7 (prev. 4), Local Business Conditions declining to 4 (prev. 10), and CAPEX falling to -5 (prev. 0), although Equipment & Software Spending improved to 0 (prev. -5). Price pressures firmed modestly, with annual growth in Prices Paid rising to 6.22% (prev. 6.08%) and Prices Received to 4.09% (prev. 3.96%). Looking ahead, manufacturers remained relatively optimistic, with expected New Orders edging up to 32 (prev. 31) and Employment improving to 20 (prev. 15), although expected Shipments fell to 26 (prev. 33) and Local Business Conditions eased to 16 (prev. 19). Encouragingly, expected CAPEX improved to 4 from -6 and Equipment & Software Spending to 2 from -5, while firms anticipate some moderation in price growth, with expected Prices Paid falling to 4.34% (prev. 4.67%) and Prices Received to 3.69% (prev. 3.75%).Overall, the report points to fairly subdued current manufacturing growth but continued optimism over the next six months, alongside expectations for some easing in price pressures.

FIXED INCOME

T-NOTE FUTURES (U6) SETTLE 13 TICKS HIGHER AT 108-27+

Treasury yields slide as oil prices drop. At settlement, 2-year -3.8bps at 4.200%, 3-year -4.8bps at 4.257%, 5-year -5.3bps at 4.353%, 7-year -6.4bps at 4.475%, 10-year -6.1bps at 4.639%, 20-year -5.1bps at 5.165%, 30-year -5.2bps at 5.175%.

THE DAY: Treasury yields were lower across the curve on Tuesday, with the decline in oil prices supporting the move. Crude sold off on renewed US-Iran optimism after the NYT reported that the US is considering returning diplomats to Middle Eastern embassies as soon as this week, suggesting the Trump administration does not anticipate an imminent return to all-out hostilities. Meanwhile, Saudi Press reported that Pakistan Army Chief Munir conveyed a US offer to Iran to halt the siege and lift sanctions under the MoU in exchange for reopening the Strait of Hormuz and ending proxy attacks.

The Treasury also sold USD 69bln of 2-year notes, with the 0.4bp stop-through, strong indirect participation and below-average dealer allocation pointing to healthy underlying demand, particularly given the lower outright yield on offer relative to July. The lower bid-to-cover and sharp decline in direct participation took some shine off the result, but the auction was still better than recent averages and suggested investors were willing to absorb the front-end supply despite the recent richening and lower yield on offer compared with July.

Economic data ultimately had little impact. The Richmond Fed Manufacturing survey remained subdued, although the outlook was more encouraging. Meanwhile, Consumer Confidence showed greater optimism around the current situation but a softer outlook, resulting in a slightly weaker-than-expected headline print.

There was also a Treasury buyback operation in the 5-7-year sector, which accepted just USD 1.19bln of the USD 8.4bln offered despite a maximum purchase amount of USD 4bln. This continues a similar theme seen in shorter-dated liquidity-support operations, where the Treasury has often purchased well below the maximum. In contrast, recent long-end operations have generally seen Treasury use the full USD 2bln capacity amid sizeable offers, helping explain the decision to increase long-end operation sizes to "at least" USD 4bln from September 9th.

SUPPLY

Notes/Bonds

• US sold USD 69bln of 2-year notes; Stop through 0.4bps.
• US to sell USD 70bln of 5-yr notes on Aug. 26th, and USD 44bln of 7-yr notes on Aug. 27th; all to settle on Aug. 31st
• US to sell USD 28bln of reopened 2yr FRN on Aug. 26th.

Bills

• US sold 6-week bills at a high rate of 3.650%, B/C 2.71x
• US to sell USD 72bln in 17-wk bills on August 26th; 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. 10.4bps), 26.1bps (prev. 27.4bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 99bln (prev. USD 96bln) on August 24th
• SOFR at 3.65% (prev. 3.65%), volumes at USD 2.919tln (prev. USD 2.952tln) on August 24th
• NY Fed RRP op demand at 0.41bln (prev. 0.38bln) across 6 counterparties (prev. 2) on August 25th
• Treasury Buyback [5-7yr nominal coupons, max USD 4bln]: Accepts USD 1.191bln of USD 8.4bln offers, O/C 7.05x. Accepts 10 of 25 eligible securities.

CRUDE

WTI (V6) SETTLED USD 2.65 LOWER AT 82.36/BBL; BRENT (X6) SETTLED USD 3.59 LOWER AT 88.58/BBL

The crude complex was lower as geopolitical developments appeared constructive following Bessent's underwhelming 'Operation Outcast' and accompanying sanctions. Given that, there were numerous headlines through the European morning that garnered crude downside, which started with Pakistan reporting "significant progress" in high-level diplomatic talks held in Tehran, aimed at de-escalating the ongoing US-Iran war. Thereafter, Pakistani Army Chief Munir conveyed an offer to Iran, from the US, to halt the siege and lift sanctions under the MOU, in exchange for opening the Strait of Hormuz and stopping proxy attacks. As such, this saw benchmarks continue to trend lower before extending further as NYT reported that the US is mulling returning diplomats to Middle Eastern embassies as soon as this week, "suggesting that the Trump administration does not anticipate a return to all-out hostilities".

Through the US session catalysts were light, and saw WTI hover around session lows for the duration of the session, albeit settling just off them. WTI fell to a USD 81.81/bbl low from a USD 85.84/bbl high, while Brent declined to USD 86.80/bbl from USD 91.29/bbl. Afterhours participants await the weekly private inventory metrics.

EQUITIES

CLOSES: SPX +0.30% at 7,676. NDX +0.64% at 29,209, DJI +0.30% at 53,577, RUT +0.48% at 3,009.

SECTORS: Technology +0.98%, Communication Services +0.46%, Materials +0.36%, Health +0.33%, Utilities +0.21%, Financials +0.18%, Real Estate +0.10%, Consumer Discretionary -0.27%, Industrials -0.30%, Consumer Staples -0.87%, Energy -1.70%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.15% at 6,458, Dax 40 +0.68% at 26,285, FTSE 100 +0.29% at 10,886, CAC 40 -0.16% at 8,439, FTSE MIB +0.34% at 52,721, IBEX 35 -0.21% at 20,057, PSI +0.57% at 9,445, SMI +0.54% at 14,525, AEX -0.15% at 1,108.

STOCK SPECIFICS:

• Alibaba Group (BABA): Jack Ma buys HKD 600mln of Alibaba shares
• DICK'S Sporting Goods (DKS): Dismal report; quarterly metrics missed and cut guidance due to weakness in footwear and athletic apparel; in sympathy, Nike and Lululemon also lower
• Tesla (TSLA): Raised the price of its Cybertruck dual-motor and premium all-wheel-drive variants by USD 5,000 each in the US
• United Airlines (UAL): Announces largest international network expansion in company history, with 10 new international cities and three new routes across Europe and Asia
• Advanced Micro Devices (AMD): Upgraded at Raymond James to 'Strong Buy' from 'Outperform' as it expects AMD will overtake Intel in the CPU market.
• Paramount Skydance (PSKY): Reportedly considers selling HGTV to settle Warner (WBD) lawsuits, according to reports.

FX

The Dollar Index was marginally lower, although newsflow was fairly light and geopolitics dominated the tape, once again. There was US data, which failed to move the dial for the Dollar, as Consumer Confidence was mixed, new home sales plunged, and Richmond Fed was soft, but the outlook was more encouraging. The only Fed speaker was 2028 voter Collins, who reiterated familiar Fed rhetoric and how she is concerned about price stability of the mandate.

G10 FX, ex-JPY, managed to eke out slight gains vs. the Greenback, albeit in pretty thin currency specific newsflow. Antipodeans outperformed on the broader risk tone, as the Aussie saw little move overnight on RBA Minutes. Recapping, they stated the board is ready to increase rates if upside risks materialise and several members judged it is possible upside risks to inflation would crystallise, others saw offsetting downside risks and time to assess data.

The Loonie was once again in vogue given the worsening US trade relations, and today Canada announced its retaliatory tariffs; it is applying 15-50% tariffs on around USD 20bln of US products, and the Canadian Government said effective September 8th, counter tariffs will be on around 700 products with 15%, 25% or 50% tariffs. Canadian Government says it will introduce a CAD 7.5bln package to support businesses and workers hit by new US tariffs.

Elsewhere, Europe saw strong German Ifo data, while the HUF was unphased after the NBH cuts rates 25bps to 5.50%, as expected.