Stocks hit as oil rally stokes inflation concerns; Trump keeps Iran strikes on the table - Newsquawk US Market Wrap

• SNAPSHOT: Equities down, Treasuries down, Crude up, Dollar up, Gold down
• REAR VIEW: US President Trump says US may do another operation against Iran, doubts Iran will say "let's get down to business"; Mixed US S&P Global flash PMIs see composite fall M/M; US ambassador to the UN reportedly says US is ready for a long Iran stand-off, possibly lasting another year; Trump lifts some tariffs on Canada; OpenAI nears up to USD 30bln funding round at USD 1.25tln valuation; WDC, FIX and BE earnings beats fail to impress; French flash PMI misses; UK retail sales decline more than expected.
• COMING UP: Data: Swedish PPI (Sep), German Ifo (Oct). Events: Chinese Fifth Plenum. Speakers: ECB’s Elderson. Supply: EZ, US; US Treasury Buyback (Liquidity Support; 20Y-30Y). Earnings: Verizon.
• WEEK IN FOCUS: Highlights include UK, Japan and Canada inflation, China Activity Data and Global Flash PMIs. Click here for the full report.
• WEEKLY US EARNINGS ESTIMATES: Tech earnings ramp up with GOOGL, MSFT, INTC, and AMZN due. Click here for the full report.

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MARKET WRAP

Breadth reversed on Friday, with Tech seeing a slight rebound after Thursday's >3% sell-off. Meanwhile, higher oil prices on an increased geopolitical risk premium weighed on cyclical names via higher yields, while benefiting energy names. Earnings continue to show largely beats; however, reception has remained poor in terms of price action. Western Digital's strong results helped its peers; however, WDC capex concerns and Toshiba competition worries remained (WDC -3.0%). Industrials was briefly the worst-performing sector at the open before paring some losses, as Bloom Energy (BE -11.3%) and Comfort Systems USA (FIX -9.3%) sank on margin concerns.

US yields tracked the move higher in oil prices, as Brent futures flirted with USD 117/bbl, around USD 2/bbl shy of the post-Iran war high in March. Gains are a function of an added geopolitical risk premium on growing bets that US-Iran strikes will resume, as a deal remains absent and US President Trump continues to refrain from ruling out strikes after the midterms, saying "we may do another operation against Iran" and that he doubts Iran will say "let's get down to business".

In FX, the dollar benefited from the inflationary environment. Next week is filled with key events: the FOMC (hold expected, December hike priced), PCE inflation data and the advance Q3 GDP release; the ECB meeting (hold expected, 66% chance of a December hike priced) and weekend French protest action; the RBNZ decision (25bps hike ~85% priced), ten days before the general election; and the UK's Autumn Budget.

Gold was weighed on by higher nominal yields and a strong buck, with the yellow metal dipping back below USD 4,000/oz to lows of USD 3,976/oz, but it failed to break below the June low of USD 3,943/oz.

US data had little bearing on price action. S&P Global flash PMIs were mixed (a sharper-than-expected services decline offset a slight manufacturing uptick, dragging the composite lower), though the survey still showed robust demand fuelling inflationary pressures. Meanwhile, UoM sentiment was essentially flat, while year-ahead and long-run inflation expectations rose for a second month to 4.7% and 3.5%, respectively, their highest since May.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 8 TICKS LOWER AT 106-05

Yield tracked oil prices higher on bets of renewed US-Iran strikes. At settlement, 2-year +3.6bps at 4.684%, 3-year +2.8bps at 4.750%, 5-year +3.0bps at 4.807%, 7-year +2.9bps at 4.888%, 10-year +2.9bps at 4.990%, 20-year +3.9bps at 5.364%, 30-year +3.0bps at 5.316%.

THE DAY: Yields were higher across the curve in response to upside inflation risks, with Brent briefly surpassing USD 117/bbl and eyeing the March highs. Higher energy prices come amid an increasing consensus that the US-Iran conflict will return to direct strikes, a matter of when, not if. US President Trump maintains ambiguity over his plans for Iran: "do we want to finish it or let it within is the question", and said "we could take all of the oil in Iran".

Separately, the modest rebound in tech stocks, a rotation back into AI names, was another factor behind higher yields, although breadth was poor across equities given the risk higher rates pose to cyclical names.

US data had little bearing on price action. S&P Global Flash PMIs were mixed: Services declined more than expected, offsetting an unexpected slight uptick in Manufacturing, resulting in the composite declining M/M. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the data shows the economy booming, with output pointing to 5% annualised GDP growth after 4% signalled in Q3. He added that rising oil prices and supply bottlenecks have driven the sharpest selling-price rise in four years, signalling higher inflation ahead.

UoM consumer sentiment was essentially flat this month. Year-ahead inflation expectations rose to 4.7% and long-run expectations to 3.5%, both up for a second straight month to their highest since May. Purchasing power is the dominant worry: buying conditions for durables fell 18% on higher interest rates and affordability concerns.

STIRs/OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 2.4bps (prev. 1.8bps), Dec 21.8bps (prev. 20.3bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 119bln (prev. USD 110bln) on October 22nd
• SOFR at 3.90% (prev. 3.88%), volumes at USD 2.945tln (prev. USD 2.942tln) on October 22nd
• NY Fed RRP op demand at USD 0.200bln (prev. USD 0.351bln) across 1 counterparties (prev. 2) on October 23rd

CRUDE

WTI (Z6) SETTLED USD 3.80 HIGHER AT USD 103.27/BBL; BRENT (Z6) SETTLED USD 3.55 HIGHER AT USD 116.72/BBL

Crude oil benchmarks rose steadily through the session amid heightened geopolitical tensions. Prices were supported by a lack of diplomatic progress between the US and Iran, continued attacks on vessels in the Strait of Hormuz and ongoing retaliatory strikes between the Houthis and Saudi Arabia. US President Trump said that the US could end the Iran war very quickly, but he questioned whether to finish it. He also claimed that the US could take all of Iran's oil and reiterated his view that the Strait of Hormuz is under US control. Crude futures came under some pressure on news that the Department of Energy has authorised an emergency exchange of up to 400K bbls of crude from the SPR to the Lake Charles refinery of Phillips 66 (PSX) in Louisiana (264K BPD capacity) following supply disruptions; Phillips 66 said it expects no operational impact. Elsewhere in Europe, Germany's oil stockpiling agency EBV issued a tender on Friday to sell diesel, heating oil and crude oil from its strategic reserves, according to a document cited by Reuters.

EQUITIES

CLOSES: SPX -0.54% at 7,622, NDX unch at 28,958, DJI -1.24% at 52,215, RUT -0.36% at 2,774

SECTORS: Consumer staples -1.83%, Consumer discretionary -1.39%, Communication services -1.39%, Financials -1.33%, Industrials -1.29%, Health -1.12%, Materials -0.99%, Utilities -0.66%, Real estate +0.23%, Technology +0.35%, Energy +2.51%.

EUROPEAN CLOSES: Euro Stoxx 50 -0.36% at 6,065, Dax 40 -0.86% at 25,152, FTSE 100 -0.40% at 10,682, CAC 40 -0.36% at 7,783, FTSE MIB +0.36% at 48,559, IBEX 35 +0.40% at 18,990, PSI +0.07% at 9,245, SMI -0.83% at 14,427, AEX +0.17% at 1,132

STOCK SPECIFICS:

• Bloom Energy (BE): Beat & raise, but concerns are over near-term margin pressure from ramping new production capacity and expedited customer timelines, unclear timing on scaling manufacturing toward 5GW, a negative cash flow quarter.
• Western Digital (WDC): Beat & raise, but capex guided above LT range sparked worries alongside signs that Toshiba is adding capacity which undermines the “rational duopoly” thesis and could mean HDD supply is accelerating.
• VeriSign (VRSN): EPS miss & lowered FY26 op. income outlook
• SpaceX (SPCX) in talks w/ infrastructure operators incl. Crown Castle (CCI) to access 80K+ US cell sites as it pursues potential 4th nationwide wireless network; peers Verizon (VZ), AT&T (T) & T-Mobile (TMUS) weighed. CNBC speculates that Verizon would most likely be involved in the context of a partnership with SpaceX.
• American Express (AXP): Beat & raise fails to impress; to cut 5% of jobs
• Deckers Outdoor (DECK): Rev. miss, next Q EPS outlook shy of exp. & cut FY27 rev. view.
• Comfort Systems (FIX): EPS & rev. beat w/ backlog +27% Q/Q, but margins below 1H levels amid DC durability jitters; CFO to retire.

FX

USD: The DXY rose on Friday, though it is still set to end the week with slight losses. PMI data showed US business activity slowed in October, but robust demand continued to fuel inflationary pressures. The flash composite PMI fell to 57.6 (prev. 58.4), while new orders rose to 58.2 (prev. 58.1). Output prices reached 59.8, the highest since August 2022, amid worsening supply bottlenecks. Elsewhere, final University of Michigan data showed consumer sentiment fell to a five-month low in October amid persistent inflation and rising interest rates. Headline sentiment slipped to 48 (prev. 48.1), slightly beating estimates, while one-year inflation expectations rose to 4.7% (prev. 4.6%) and longer-term expectations reached 3.5% (prev. 3.4%), both the highest since May. Looking ahead, traders are eyeing next week's FOMC policy meeting (a hold is expected, with a hike priced for December), PCE inflation data (seen ticking up after the hot CPI/PPI metrics) and the advance Q3 GDP release.

EUR: The Euro slipped after weak PMI data, which showed Eurozone private sector growth at a four-month low, dragged down by a renewed French contraction. French bonds saw some reprieve after the recent selling; still, traders will be mindful of French protest action over the weekend. More broadly, next week's ECB meeting is coming into focus, where the central bank is expected to hold rates, although markets are pricing a 66% chance of a December hike.

JPY: The Yen strengthened overnight following Japanese CPI data and a hawkish-leaning BoJ sources report, but gave up its gains amid USD strength during the US session. Core CPI accelerated to 2.1% in September (exp. 2.1%; prev. 1.7%), exceeding the BoJ's 2% target and strengthening expectations of a December rate hike. Inflation ex-fresh food/fuel rose to 2.4% (prev. 1.9%), signalling broadening price pressures. Meanwhile, Bloomberg reported that the BoJ may maintain a rapid pace of rate hikes, with December the next potential move; officials believe underlying inflation has broadly reached the 2% target, while the current policy rate remains some distance from neutral.

NZD: The Kiwi outperformed on Friday, with reports noting that the RBNZ is widely expected to raise rates by 25bps next week, ten days before the country's general election. Swaps pricing implies roughly an 85% chance of the move, and close to even odds of a further rise to 3.25% in December. ANZ issued a hawkish call and now expects three more hikes from the RBNZ.

GBP: The Pound digested weaker-than-expected UK retail sales amid concerns over the Middle East situation and uncertainty ahead of next week's Autumn Budget. UK PMI data was more upbeat, although price pressures remained a key concern.

CAD: USD/CAD rose throughout the session but saw downside on a WSJ report that US President Trump is considering lifting 50% tariffs on certain Canadian agricultural and forestry products as early as Friday to support Republican midterm candidates. Elsewhere, StatsCan estimates that Canadian retail sales rose 0.7% M/M in September, following a 1.2% M/M increase in August (exp. 1.3%); the resilient consumer data comes ahead of the BoC's rate decision, with markets pricing an over 80% probability of a hike.