Stocks mixed amid AI rout as oil plummets on US-Iran optimism - Newsquawk US Market Wrap

• SNAPSHOT: Equities mixed, Treasuries up, Crude down, Dollar down/flat, Gold down
• REAR VIEW: Mediators of the ongoing conflict in the Middle East believe the US and Iran are reportedly close to a deal that would resurrect the failed MoU; Iran reportedly demonstrating 'flexibility' over Hormuz Strait operations; OPEC+ reportedly expects to hold 2026 output steady after September; US Consumer Confidence misses in July; KO earnings beat; GLW revenue & outlook disappoint; V to cut 7% of workforce; Average 7-year auction.
• COMING UP: Data: Australian Inflation (Jun/Q2), Swedish GDP Flash (Q2), ECB Wage Tracker, US Atlanta Fed GDP. Events: Fed Policy Announcement (Jul), BoC Minutes (Jul) . Speakers: Fed Chair Warsh, RBA's Hunter. Supply: Germany. Earnings: SoFi, Microsoft, Meta, Arm, Qualcomm, L'Oreal, Hermes, Airbus, Porsche AG, BASF, UBS, Rio Tinto, Standard Chartered

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MARKET WRAP

US indices closed mixed, with the S&P 500 eking out gains and the Dow Jones outperforming, while the Nasdaq 100 was the clear laggard. The Dow's strength was driven by gains in UnitedHealth (UNH), Amgen (AMGN) and Sherwin-Williams (SHW). The tech-heavy Nasdaq was weighed on by weakness in semiconductor names, with the Semiconductor ETF (SOXX) and Memory ETF (DRAM) both posting notable losses, tracking an extraordinary 10% decline in South Korea's KOSPI overnight as the global AI trade remained under heavy pressure. Despite the headline weakness, the equal-weight S&P 500 (RSP) advanced, highlighting positive underlying market breadth. On a sector basis, all but three sectors closed in positive territory, with Health Care, Consumer Staples and Materials outperforming, while Technology and Industrials—both heavily exposed to the AI theme—lagged alongside Energy, which was pressured by the sharp decline in crude prices.

Crude prices tumbled on Tuesday, extending Monday's losses as signs of de-escalation between the US and Iran continued to build. The key catalyst during the session came after Fox, citing an earlier Times of Israel report, said mediators believe the US and Iran are close to reviving the previously failed memorandum of understanding. Additional reports that Oman has proposed a regional framework involving Iran and Gulf states to help manage security in the Strait of Hormuz, alongside reports of Iranian flexibility over Strait operations, added to the constructive tone and further weighed on the crude complex.

In FX, the Dollar was mixed against its G10 peers, with NZD, EUR and CAD seeing modest gains, while AUD underperformed, giving back some of Monday's outperformance.

Treasuries rallied across the curve as the continued decline in oil prices eased inflation concerns, while the USD 44bln 7-year note auction produced a broadly average result and generated little market reaction.

Attention now turns to Wednesday's FOMC decision and Chair Warsh's press conference, alongside earnings from Meta (META) and Microsoft (MSFT), before US GDP and PCE data on Thursday.

US

FOMC PREVIEW: The Federal Reserve is expected to leave rates unchanged at 3.50-3.75%, with money markets currently assigning a 36% chance of a hike on Wednesday, and 36bps of tightening currently priced in by year-end. Most sell-side analysts see the central bank leaving rates on hold, highlighted by the latest Reuters poll which saw all 104 forecasters expecting an unchanged rate decision. 78 out of 104 see no change through the year, while only 6 see rate cuts. Meanwhile, despite consensus for a hold, 66% of respondents now view the likelihood of a rate hike this year as "high," a significant shift from the "low" sentiment recorded in June. Nonetheless, outside of the poll Citadel gave an out of consensus call and sees a 25bps hike on Wednesday. A softer than expected June CPI report and weaker nonfarm payrolls give the Committee room to wait, and forward guidance is not expected to see any forward guidance given the alteration in communication policy. This would allow officials to assess how the Middle East conflict develops, particularly after the recent escalations and subsequent de-escalations between the US and Iran, which has resulted in volatile oil prices. Policymakers have previously cautioned against responding too quickly to what may prove to be a temporary shock, although underlying inflation remains well above target. For Chair Warsh, the most likely outcome may therefore be a hawkish hold. In the June projections, nine of the 18 participants who submitted forecasts expected at least one rate hike this year. Click here to download the full report..

ADVANCE ECONOMIC INDICATORS: The advance US goods trade deficit narrowed to USD 101.5bln in June (exp. -USD 101.3bln, prev. -USD 105.9bln), as a broad-based decline in imports outpaced a smaller fall in exports. Goods imports fell 2.6% M/M, led by declines in consumer goods (-3.8%), automotive vehicles (-2.5%), capital goods (-2.0%) and industrial supplies (-1.9%), while exports fell 1.8%, with weakness concentrated in industrial supplies (-4.4%) and foods, feeds and beverages (-3.1%), partly offset by a 5.1% increase in automotive exports. Elsewhere, wholesale inventories rose 0.3% M/M (exp. 0.2%, prev. 0.3% revised from 0.1%), while retail inventories excluding autos fell 0.2% M/M (exp. +0.3%, prev. +0.2% revised from +0.3%), suggesting inventory accumulation continued in the wholesale sector but softened at retailers. Oxford Economics notes that despite the narrower June trade deficit, net trade is still likely to subtract more than one percentage point from Q2 GDP, although this should be largely offset by strong inventory accumulation and business investment. Oxford also highlights that capital goods imports declined for the first time since September 2025, but remain up 37% Y/Y due to robust demand for AI-related hardware, suggesting that the reliance on imported technology has limited the net boost from AI investment to US GDP.

FIXED INCOME

T-NOTE FUTURES (U6) SETTLED 7+ TICKS HIGHER AT 108-26

T-notes rose across the curve as oil prices extended Monday's losses amid further signs of de-escalation between the US and Iran. At settlement, 2-year -4.7bps at 4.273%, 3-year -5.3bps at 4.300%, 5-year -4.6bps at 4.356%, 7-year -4.5bps at 4.468%, 10-year -4.7bps at 4.600%, 20-year -4.7bps at 5.111%, 30-year -4.1bps at 5.093%.

THE DAY: Treasury yields moved lower across the curve on Tuesday as oil prices came under further pressure amid additional signs of de-escalation in the Middle East. Reports citing The Times of Israel, via Fox, stated that mediators believe the US and Iran are close to reaching a deal that would resurrect the previously failed memorandum of understanding. Separately, reports suggested Oman has proposed creating a regional group comprising Iran and the Gulf states to oversee ship traffic through the Strait of Hormuz and help provide security for vessels transiting the waterway, while further reports indicated Iran is demonstrating flexibility regarding operations through the Strait. The prospect of a diplomatic resolution saw WTI and Brent crude extend Monday's sharp declines, easing inflation concerns and supporting Treasuries ahead of Wednesday's FOMC decision.

US economic data had little impact on price action. Consumer confidence fell by more than expected, driven by a decline in the Present Situation Index, while consumers also became more pessimistic about the six-month outlook. Labour market perceptions softened modestly, with the share of respondents saying jobs were plentiful declining, while those saying jobs were hard to get was little changed. Elsewhere, the Richmond Fed Manufacturing Index disappointed expectations, although the Dallas Fed Manufacturing Index improved from the prior month. The Advance Goods trade deficit was little changed in June, while wholesale inventories beat and retail inventories missed.

Treasury supply also had little impact, with the USD 44bln 7-year note auction producing a broadly average result. The auction tailed by 0.2bps, while the bid-to-cover ratio was broadly in line with recent averages. A sharp decline in direct demand was offset by a notable rebound in indirect participation, leaving the overall result broadly balanced.

Attention now turns to Wednesday's FOMC decision, before US GDP and PCE data on Thursday, with markets continuing to monitor developments in the Middle East following the recent improvement in diplomatic rhetoric.

SUPPLY

Notes

• US sold USD 44bln of 7-year notes; tail 0.2bps

Bills

• US sold 6-wk bills at high-rate 3.700%, B/C 2.93x
• US to sell USD 72bln of 17-week bills on July 29th, to sell USD 110bln of 4-week bills and USD 100bln of 8-week bills on July 30th; all to settle August 4th.

STIRS / OPERATIONS

• Fed Pricing: 33.5bps (prev. Dec 36.3bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 104bln (prev. USD 106bln) on July 27th
• SOFR at 3.64% (prev. 3.64%), volumes at USD 2.953tln (prev. USD 2.979tln) on July 27th
• NY Fed RRP op demand at 1.13bln (prev. 1.38bln) across 3 counterparties (prev. 3) on July 28th
• Treasury Buyback [Liquidity support, 20-30 year, max USD 2bln]: Accepts USD 2bln of 21.935bln offered, accepts 3 of 35 eligible securities. Offer to cover 10.97x

CRUDE

WTI (U6) SETTLED USD 3.35 LOWER AT 79.26/BBL; BRENT (V6) SETTLED USD 3.79 LOWER AT 82.08/BBL

The crude complex sold off amid bearish headlines. Benchmarks sold off aggressively through the US afternoon, with WTI and Brent hitting troughs of USD 77.78/bbl and 80.67/bbl, respectively, after Fox reported that mediators say the US and Iran are close to reviving the MoU, albeit citing an earlier Times of Israel article. The outlet, citing sources, said that negotiators from Pakistan, Egypt and Qatar have been working on clarifying how the Strait of Hormuz will operate, and the White House was waiting to decide after Trump met with Netanyahu on Tuesday. Following this, Iran reportedly said it hasn't sought US talks in the past 16-17 days, and separate reports said Iran has no plans to negotiate with the US. Prior to all this, in the EU morning the crude complex saw pressure on two separate headlines: 1) Oman is said to have presented to Iran a proposal for a joint regional mechanism to manage the Strait of Hormuz with "voluntary fees"; 2) Iran demonstrating 'flexibility' over Hormuz Strait operations.

Through the US afternoon, there was a slew of remarks, and as Trump met both Netanyahu and Zelensky, albeit separately. Iranian Deputy Foreign Minister said Tehran has proposed to Muscat that Iran manage one-way shipping transit on one side of the Strait of Hormuz, while Oman would be part of the opposite direction. Meanwhile, Reuters reported that China has held direct negotiations with Yemen’s Houthi movement to ensure safe passage for its oil tankers through the southern Red Sea.

On the supply footing, OPEC+ reportedly expects to hold 2026 output steady after September. Ahead, weekly private inventory data is afterhours.

EQUITIES

CLOSES: SPX +0.2% at 7,429, NDX -0.98% at 27,763, DJI +1.03% at 52,752, RUT +0.2% at 2,954

SECTORS: Health +2.33%, Consumer Staples +1.96%, Materials +1.66%, Communication Services +1.64%, Financials +1.18%, Consumer Discretionary +0.95%, Real Estate +0.36%, Utilities -0.36%, Industrials -0.41%, Technology -1.17%, Energy -1.40%

EUROPEAN CLOSES: Euro Stoxx 50 +0.24% at 6,297, Dax 40 +0.27% at 25,494, FTSE 100 +0.88% at 10,877, CAC 40 +0.63% at 8,459, FTSE MIB -0.66% at 51,710, IBEX 35 +0.01% at 19,743, PSI +0.14% at 9,135, SMI +1.07% at 14,576, AEX +1.05% at 1,093

STOCK SPECIFICS:

• Cadence Design Systems (CDNS): Profit beat and raised FY outlook.
• Welltower (WELL): FFO and revenue topped.
• Johnson & Johnson (JNJ): Agreed to pay USD 5.5bln to settle around 80k remaining ovarian cancer lawsuits involving its talc products.
• Universal Health Services (UHS): Lowered FY guidance.
• United Parcel Service (UPS): Strong quarterly metrics and lifted FY revenue view.
• Centene (CNC): Quarterly results comfortably beat Wall Street expectations.
• Royal Caribbean Group (RCL): Solid report, but weighed on by cautious commentary regarding the near-term Middle East impact on bookings.
• Pentair (PNR): To acquire Taco Group Holdings for USD 1.4bln.
• Coca-Cola (KO): EPS and revenue topped.
• Sherwin-Williams (SHW): Stellar report and FY guidance.
• Corning (GLW): Top line missed with disappointing next-quarter outlook.
• Core Scientific (CORZ): Partners with Advanced Micro Devices to provide up to 2.5GW of AI data centre capacity.
• Honeywell International (HON): Upgraded at BofA.
• Chinese AI Startup Moonshot seeks more Nvidia (NVDA) blackwell chips for the next model, reports The Information.
• Visa (V) confirmed reports that the Co. is planning to layoff 7% of its workforce.
• US lawmakers are said to be seeking a national security probe of Chinese chip giant CXMT (688825 CH) following its blockbuster IPO, NYT reports

FX

DXY was slightly weaker as the continued drop in oil prices and yields weighed ahead of the FOMC meeting on Wednesday. Optimism over the pause in strikes leading to a reopening of the Strait of Hormuz increased on Tuesday, helped by reports that mediators of the ongoing conflict in the Middle East believe the US and Iran are close to a deal that would resurrect the failed MoU. While recent remarks from Trump have stated that the US and Iran are in talks, Iran has reportedly said it hasn't sought talks with the US in the past 16-17 days.

Separately, US data showed Consumer Confidence in July actually fell despite expectations for a slight improvement. Concerns over current business conditions worsened, with consumers less optimistic about future business conditions.

On Wednesday, the Fed is expected to leave rates unchanged at 3.50-3.75%, with money markets currently assigning a 36% chance of a hike on Wednesday, and 36bps of tightening currently priced in by year-end. Click here for the full Newsquawk Fed Preview

NZD, EUR, and CAD were the top gainers vs USD, while AUD lagged with modest weakness. Currency-specific newsflow was generally absent today, with geopolitics dominating headlines, whilst the USD specifics are likely to be the driver of FX moves on Wednesday. Overnight, we will get the Q2 and June inflation figures out of Australia. AUD/USD currently resides around 0.6976, failing to move below the 20 DMA of 0.6963.