Stocks slide and Dollar gains as eyes turn to FOMC - Newsquawk US Market Wrap

• SNAPSHOT: Equities down, Treasuries steepen, Crude up, Dollar up, Gold flat.
• REAR VIEW: Libya's NOC said production and operations have been suspended in 3 oil fields; Oil loadings suspended at top Saudi Red Sea port of Yanbu after previous attack on east-west pipeline; Oman’s Foreign Minister spoke by phone with the US Secretary of State to discuss regional developments; Dismal US 20yr auction; Houthi militia is digging trenches near Bab al-Mandeb and laying mines in the sea; China criticises US calls for a slowdown in AI development.
• COMING UP: Data: Japanese Trade Balance (Aug), UK Inflation (Aug), Italian Inflation Final (Aug), ECB Wage Tracker (Aug), US Retail Sales (Aug), Atlanta Fed GDP (Q3), New Zealand GDP (Q2) Events: Fed Policy Announcement, BCB Policy Announcement, BoC Minutes Speakers: ECB's Vujcic, Elderson, Nagel; Fed Chair Warsh Supply: Australia, Germany

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MARKET WRAP

Stocks closed lower again on Tuesday, with the Nasdaq and Russell underperforming, while the equal-weight S&P fell 0.4%. Calls for a slowdown in AI development remained an overhang for sentiment, although the SOXX and DRAM ETFs were marginally firmer following their sharp declines on Monday.

Sectors were predominantly lower, with weakness led by Consumer Discretionary, Communication Services and Utilities. Energy was the only sector to close higher as crude prices rallied.

The upside in crude was driven by fresh supply concerns after Libya's NOC said operations had been suspended at three oil fields, while Saudi Arabia reportedly informed some European refiners that their September crude cargo loadings had been cancelled. Oil loadings were also reportedly suspended at the key Saudi Red Sea port of Yanbu following the recent attack on the East-West pipeline.

The Treasury yield curve steepened marginally, with front-end yields edging lower and long-end yields slightly higher, despite the rally in crude prices. The NY Fed Manufacturing survey had little impact, with participants largely awaiting Wednesday's FOMC rate decision, updated SEPs and Chair Warsh's press conference. Meanwhile, the 20-year Treasury auction saw a very weak reception, tailing the WI by 2bps alongside a sharp decline in indirect demand.

In FX, the Dollar outperformed amid the broader risk-off backdrop and firmer crude prices, while the Yen and Kiwi lagged. Gold was little changed, while silver saw gains. Bitcoin was sold after the Senate failed to advance the CLARITY Act.

US

NY FED MANUFACTURING: The Empire State Manufacturing Index fell to 7.6 in September (exp. 14.75, prev. 20.6), below expectations but still signalling a modest expansion in New York manufacturing activity following August's strong growth. Under the hood, New Orders slowed sharply to 2.0 (prev. 17.3), while Shipments fell into contraction at -3.2 (prev. 11.7) and Unfilled Orders eased to 5.9 (prev. 15.5). Supply-chain pressures remained elevated, with Delivery Times at 18.8 (prev. 20.6) signalling significantly longer lead times, while Supply Availability remained negative at -11.9 (prev. -13.4). Labour indicators were notably stronger, with Employment rising to 10.6 (prev. 9.3) and the Average Workweek jumping to 17.0 (prev. 6.9), its highest in nearly five years. Meanwhile, inflation pressures intensified, with Prices Paid rising to 63.1 (prev. 58.6), edging above its recent four-year high reached in May, while Prices Received increased to 28.1 (prev. 22.7). Looking ahead, firms remained optimistic, although expectations moderated somewhat, with Future Business Conditions at 29.0 (prev. 32.1), Future New Orders at 25.3 (prev. 37.1), and Future Employment at 20.0 (prev. 28.2). Expected Prices Paid jumped to 67.3 (prev. 57.7), suggesting firms anticipate input-cost pressures remaining elevated, while capital spending plans remained modest. Overall, the report points to slower but still-positive manufacturing growth, alongside solid labour demand and intensifying price pressures, with supply constraints continuing to weigh on the sector.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 7+ TICKS LOWER AT 105-30

Yield curve steepens, but all eyes turn to Wednesday's FOMC rate decision. At settlement, 2-year -0.7bps at 4.661%, 3-year -1.1bps at 4.757%, 5-year -0.7bps at 4.824%, 7-year -0.7bps at 4.905%, 10-year -0.2bps at 4.996%, 20-year +0.7bps at 5.402%, 30-year +1.0bps at 5.364%.

THE DAY: The Treasury yield curve steepened modestly on Tuesday, with front-end yields marginally lower while long-end yields edged higher, although price action was relatively contained ahead of Wednesday's key FOMC rate decision.

The steepening came despite a rally in crude prices amid ongoing supply concerns. Libya's NOC said production and operations had been suspended at three oil fields after a valve was closed on the Al-Hamada-Zawiya pipeline, warning it may need to declare force majeure if the closure persists. Meanwhile, Saudi Arabia reportedly informed some European refiners that their September crude cargo loadings had been cancelled, while oil loadings were reportedly suspended at Saudi Arabia's key Red Sea port of Yanbu following the earlier attack on the East-West pipeline.

Meanwhile, the 20-year bond auction was very weak. The 2bp tail, below-average bid-to-cover, sharp decline in indirect participation and elevated dealer allocation pointed to a very soft reception despite the substantial increase in outright yield. The auction cleared at 5.420%, more than 20bps above the prior auction's 5.204%, suggesting the additional yield was insufficient to attract strong demand. Direct participation was a notable bright spot but was not enough to offset the significant deterioration in indirect demand. The significant event risk surrounding Wednesday's FOMC decision and updated SEP may have kept some participants on the sidelines.

The US data highlight was the September NY Fed Manufacturing Index, which pointed to slower but still-positive manufacturing growth alongside solid labour demand and intensifying price pressures, while supply constraints continued to weigh on the sector.

Overall, Treasuries largely meandered on Tuesday as participants awaited Wednesday's FOMC rate decision. A 25bp hike is largely expected, although an unchanged decision remains a risk. With the immediate decision heavily priced, attention will also be on the updated SEP and dot plot, alongside Chair Warsh's press conference, for guidance on whether policymakers expect further tightening beyond September.

SUPPLY

Notes

• US sold USD 13bln of 20yr bonds; tail 2bps
• US to sell USD 19bln of 10yr TIPS on Sept. 17th; to settle on Sept. 30th

Bills

• US sold 6-wk bills at a high rate of 3.850%, B/C 3.16x
• 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: Sept 23.6bps (prev. 23.2bps), Dec 52.6bps (prev. 50.7bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 91bln (prev. USD 105bln) on September 14th
• SOFR at 3.62% (prev. 3.62%), volumes at USD 2.861tln (prev. USD 2.867tln) on September 14th
• NY Fed RRP op demand at 0.70bln (prev. 1.42bln) across 2 counterparties (prev. 4) on September 15th
• Treasury Buyback [10-30year TIPS, Liquidity Support, Max USD 500mln]: Accepts USD 500mln of USD 2.088bln offers, accepts 6 of 16 eligible securities. O/C 4.176%.

CRUDE

WTI (V6) SETTLED USD 4.44 HIGHER AT 105.83/BBL; BRENT (X6) SETTLED USD 3.07 HIGHER AT 108.75/BBL

The crude complex surged on Tuesday as a series of bullish supply headlines pushed benchmarks higher. Through the European morning and early US session, WTI and Brent initially drifted lower, falling to lows of USD 101.21/bbl and USD 105.10/bbl, respectively, after reports that Oman's Foreign Minister and the US Secretary of State discussed efforts to de-escalate regional tensions.

Thereafter, however, it was largely one-way traffic higher for crude. The upside was driven by a series of supply-related developments: firstly, Libya's NOC said production and operations had been suspended at three oil fields after a valve was closed on the Al-Hamada-Zawiya pipeline, warning it may need to declare force majeure if the closure persists. Secondly, Saudi Arabia reportedly informed some European refiners that their September crude cargo loadings had been cancelled. Finally, oil loadings were reportedly suspended at Saudi Arabia's key Red Sea port of Yanbu following the earlier attack on the East-West pipeline.

Against this backdrop, WTI and Brent rallied towards session highs of USD 106.75/bbl and USD 109.45/bbl, with participants awaiting further developments surrounding the US/Iran situation and the broader supply outlook. Bloomberg also reported that Saudi Arabia and the forces it backs in Yemen are struggling to counter the Houthi advance, according to assessments from several Western European militaries, and are unlikely to regain the key Red Sea port of Mokha, which the Houthis captured last week.

Some strength was pared into settlement after Tasnim reported that Iran and Pakistan are cooperating to ensure regional security, although benchmarks still settled around session highs. Attention now turns to the private inventory data due after-hours.

EQUITIES

CLOSES: SPX -0.45% at 7,585, NDX -0.78% at 28,938, DJI -0.63% at 52,093, RUT -0.68% at 2,873.

SECTORS: Energy +2.26%, Materials +0.37%, Health -0.08%, Real Estate -0.24%, Technology -0.34%, Financials -0.35%, Industrials -0.64%, Communication Services -0.84%, Consumer Staples -0.85%, Utilities -1.20%, Consumer Discretionary -1.76%.

EUROPEAN CLOSES: Euro Stoxx 50 -0.36% at 6,238, DAX 40 -0.07% at 25,423, FTSE 100 -0.37% at 10,658, CAC 40 -0.34% at 8,090, FTSE MIB -0.14% at 51,555, IBEX 35 -0.05% at 19,556, PSI +0.71% at 9,447, SMI -0.50% at 13,809, AEX -0.23% at 1,096.

STOCK SPECIFICS:

• China criticises US calls for a slowdown in AI development.
• Wells Fargo (WFC) said Q3 NIM could be better than guidance and FY26 loan growth will likely be better than guided.
• Sysco (SYY) launched USD 1bln stock offering.
• Dave & Buster's Entertainment (PLAY) reported a surprise loss per share, revenue was light and comparable sales declined; also flagged a pullback in spending and investment.
• Waystar Holding (WAY) is reportedly exploring strategic options, including a potential sale.
• Boeing (BA) close to finalising order for 150 Max jets to Turkish airlines after engine maintenance dispute resolved, according to reports.
• Butterfly Network (BFLY) CEO remarked Sam Altman is now starting his own neuralink and chose Butterfly.
• JPMorgan (JPM) Co-President Pinto stated CEO Dimon is not stepping back; seeing broad based strength across IB and across all geographies, and would expect IB fees in Q3 to be up mid to high teens.

FX

The Dollar Index was firmer on Tuesday amid broader risk-off sentiment and surging oil prices, to the detriment of its G10 peers. Dollar-specific newsflow was sparse ahead of Wednesday's pivotal FOMC decision, where the Fed is widely expected to hike rates by 25bps, although such a move is not quite a foregone conclusion. There was no Fed speak amid the blackout period and little in the way of tier-one US data, while the headline NY Fed Manufacturing Index disappointed expectations for September.

G10 FX was lower across the board against the Greenback, with the Yen the clear laggard amid widening yield differentials, followed by the Kiwi. The EUR, AUD and CAD were relative outperformers, although all still weakened to varying degrees. On the Yen, US Treasury Secretary Bessent said the US has been in constant dialogue with Japan regarding intervention and used a "nominal amount" during its Yen intervention, adding that the US made tens of millions of dollars on the operation. The next major risk event for the Yen is the BoJ decision later this week.

Elsewhere, Germany's September ZEW Economic Sentiment Index underwhelmed, rising to 34.7 from 34.2 but falling short of the 37.0 forecast. In the UK, the Jobs/Wages report was mixed, with unemployment holding at 4.9% (exp. 5.0%), while the wage components were in line with expectations. Overall, the report is unlikely to materially alter expectations for Thursday's BoE meeting, where rates are expected to remain unchanged. In Asia, Chinese Retail Sales fell short of the Wall Street consensus, while Industrial Production beat expectations.