Stocks slip as yields track oil move higher on US-Iran stalemate - Newsquawk US Market Wrap

• SNAPSHOT: Equities down, Treasuries down, Crude up, Dollar down, Gold up
• REAR VIEW: Senior Iranian official said Iran has decided to shift its policy from defensive to a 'fully offensive' one and has set a deadline of a few weeks for implementation of MoU by US; IRGC rejects Trump's claim about behind-the-scenes talks; Iran said that there are ongoing contacts with Qatar; Hotter-than-expected Canadian CPI; GOOGL seeks $3.6B in first Australian bond sale; NVDA credit support capped at USD 105B for SB Energy data centre in Ohio that OpenAI will use.
• COMING UP: Data: Australian Westpac Consumer Confidence Change (Aug), UK Jobs Report (Jun), Average Earnings (Jun), EU/German ZEW Economic Sentiment Index (Aug), US ADP Employment Change Weekly, Import/Export Prices (Jul), Housing Starts (Jul), Industrial/Manufacturing Production (Jul), Atlanta Fed GDP (Q3). Speakers: ECB's Lane. Supply: Japan, UK. Earnings: Home Depot, Baidu.
• WEEK IN FOCUS: FOMC Minutes, Global Flash PMIs, UK Jobs, Inflation from Japan, Canada and UK. Click here for the full report.
• WEEKLY US EARNINGS ESTIMATES: Retailers take focus with highlights including WMT, HD, TGT & LOW. Click here for the full report.

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MARKET WRAP

US indices ended the first session of the week in the red as US-Iran newsflow dominated the tape, in otherwise a light session of headlines in typical summer trading conditions. Recapping, sources said the 60-day period between Iran and the US has been extended, while a Senior Iranian official said Iran has decided to shift its policy from defensive to a 'fully offensive' one, and Trump stated there are ongoing back channels with the IRGC, which the IRGC denied. As such, slight risk-off price action was seen, as Treasuries weakened and oil gained, settling at highs. Given this, sectors were exclusively in the red, aside from Energy, with Communication Services and Consumer Staples the laggards; there was no tier 1 US data or Fed speak, as earnings season begins to wind down. Despite saying that, it is the retailers this week, with Home Depot (HD) the highlight tomorrow. On the stock specific front, there was little new, but the memory ETF DRAM and memory names rallied once again, helped by US Commerce Secretary Lutnick noting the Trump administration opposes Apple (AAPL) using Chinese memory chips. Once again, the calendar for scheduled risk events this week is light, with FOMC Minutes on Wednesday the highlight.

NY FED

NY FED MANUFACTURING: The Empire State Manufacturing Index rose to 20.6 in August (exp. 11.0, prev. 15.6), its highest level in more than four years and signalling a further strengthening in New York manufacturing activity. Under the hood, New Orders remained solid at 17.3 (prev. 22.2) and Shipments at 11.7 (prev. 24.4), despite both easing from July, while Unfilled Orders jumped to 15.5 (prev. 5.0). Supply-chain pressures remained notable, with Delivery Times rising to 20.6 (prev. 13.0), Supply Availability deteriorating to -13.4 (prev. -10.0), and Inventories falling to -5.2 (prev. 4.0). On inflation, Prices Paid increased to 58.6 (prev. 52.3), pointing to firmer input-cost pressures, although Prices Received eased for a second consecutive month to 22.7 (prev. 27.6). Labour indicators remained positive, with Employment at 9.3 (prev. 11.4) and the Average Workweek rising to 6.9 (prev. 2.8). Looking ahead, firms remained optimistic, with Future Business Conditions rising to 32.1 (prev. 27.9), alongside stronger expectations for new orders, shipments and notably employment. However, firms expect supply availability to deteriorate further and price pressures to remain elevated. Pantheon Macroeconomics described the manufacturing upturn as still intact but noted that supply-chain pressures remain intense.

FIXED INCOME

T-NOTE FUTURES (U6) SETTLED 4 TICKS LOWER AT 108-14+

Yield curve steepens in quiet trade as attention turns to FOMC Minutes. At settlement, 2-year +1.3bps at 4.184%, 3-year +0.8bps at 4.255%, 5-year +1.6bps at 4.378%, 7-year +2.1bps at 4.537%, 10-year +3.2bps at 4.724%, 20-year +5.0bps at 5.307%, 30-year +5.0bps at 5.311%.

THE DAY: The Treasury curve steepened on Monday in relatively quiet trade, with the move led by the long end. The 30-year yield broke above 5.300%, moving above the peaks seen following the July FOMC, when Chair Warsh's avoidance of forward guidance and apparent comfort with tighter financial conditions helping the Fed achieve its goals triggered a pronounced steepening of the curve.

The highlight this week will be the FOMC Minutes on Wednesday, where attention will be on whether the preference for tighter policy extended beyond the three dissenters and whether other participants saw a case for a July hike. However, markets may ultimately look through the minutes given their backward-looking nature, particularly as they will not capture the subsequent softer inflation and employment data that have seen participants pare Fed rate hike expectations.

Oil prices settled higher amid mixed geopolitical messaging. President Trump told Fox that the US is in contact with the IRGC through back channels, although Iran subsequently pushed back on the claim. Reports also suggested that a 60-day extension of the US-Iran ceasefire has been reached, although at the time of writing there has been no confirmation from either the US or Iran. Meanwhile, Trump threatened military action against Oman if it obstructs efforts to reopen the Strait of Hormuz.

SUPPLY

Notes/Bonds

• US to sell USD 16bln of 20-year bonds on August 19th and USD 8bln of 30-year TIPS on August 20th; all to settle August 31st Bills
• US to sell USD 95bln of 6-week bills on August 18th on August 18th, USD 92bln of 13-week bills and USD 79bln of 26-week bills on August 17th; all to settle August 20th.

STIRS / OPERATIONS

• Fed Hike Pricing via CME Fed Watch: Sept 8.2bps (prev. 8.2bps), Dec 22.1bps (prev 24.2bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 99bln (prev. USD 106bln) on August 14th
• SOFR at 3.62% (prev. 3.62%), volumes at USD 2.957tln (prev. USD 2.932tln) on August 14th
• NY Fed RRP op demand at 0.45bln (prev. 0.725bln) across 1 counterparties (prev. 1) on August 13th

CRUDE

WTI (U6) SETTLED USD 2.10 HIGHER AT USD 84.50/BBL; BRENT (V6) SETTLED USD 2.35 HIGHER AT USD 90.87/BBL

The crude complex settled around highs as benchmarks ground higher through the duration of the US afternoon. Newsflow has been pretty quiet, but a couple of US/Iran headlines have been the highlight; Al-Arabiya sources said the 60-day period between Iran and the US has been extended, while a Senior Iranian official said Iran has decided to shift its policy from defensive to a 'fully offensive' one. Meanwhile, Trump stated there are ongoing back channels with the IRGC, but the IRGC denied this. Furthermore, Fars reports the seizure of a violating UAE oil tanker in the Strait of Hormuz. On the more constructive side, Iran said there are ongoing contacts with Qatar on de-escalatory efforts whilst talks are ongoing with Oman regarding an agreement over shipping through the Strait of Hormuz. For the record, WTI traded between USD 81.50-84.88/bbl and Brent USD 88.01-91.21/bbl.

EQUITIES

CLOSES: SPX -0.52% at 7,745, NDX -0.17% at 29,995, DJI -0.51% at 53,465, RUT -0.35% at 3,058

SECTORS: Communication services -1.47%, Consumer staples -1.46%, Financials -1.04%, Consumer discretionary -1.03%, Real estate -0.89%, Materials -0.5%, Utilities -0.38%, Health -0.21%, Industrials -0.16%, Technology -0.16%, Energy +0.87%

EUROPEAN CLOSES: Euro Stoxx 50 -0.19% at 6,527, Dax 40 -0.27% at 26,370, FTSE 100 -0.28% at 10,720, CAC 40 -0.66% at 8,580, FTSE MIB +0.01% at 53,587, IBEX 35 -0.87% at 19,982, PSI -0.38% at 9,220, SMI -0.61% at 14,302, AEX -0.27% at 1,115

STOCKS SPECIFICS:

• Alibaba (BABA) selling its Gaming unit for at least USD 1.5bln to fund its AI push.
• Diana Shipping (DSX) withdrew its offer to acquire Genco (GNK), citing demands from the Genco board it deemed unrealistic.
• Nvidia (NVDA) & OpenAI are nearing a deal to finance a large-scale data centre campus in Ohio.
• IRS investigating UnitedHealth (UNH) over alleged underpayment of taxes between 2017-20 via a foreign subsidiary.
• Mobileye (MBLY) was upgraded at Berenberg to Buy from Hold.
• US Commerce Secretary Lutnick said the Trump administration opposes Apple (AAPL) using Chinese memory chips.
• Nvidia (NVDA) will be the exclusive AI compute infrastructure provider for SB Energy’s PORTS-Pike data centre campus in Ohio; Nvidia will provide credit support for the “land, power and shell” capped at USD 105bln for SB Energy data centre in Ohio.
• Shopify (SHOP) was downgraded at Phillip Secs to 'Accumulate' from 'Buy'.
• US Navy awards RTX (RTX) USD 22.9bln contract to boost output of Tomahawk missile.

FX

USD was little changed, with trading ranges quiet to start the week. Updates were centred around geopolitics, which resulted in higher crude prices. The main takeaway was a senior Iranian official speaking to Reuters, noting that they are moving policy to the offensive, now shifting towards making their own deadlines, leaving a few weeks for the implementation of the MoU by the US. Ahead this week, focus will also be on the FOMC Minutes taken from the 9-3 hold meeting in July.

AUD, NZD, and CHF strengthened vs USD to start the week; meanwhile, JPY was slightly weaker as rising US yields amid upward inflationary risks pressured the carry trade, leaving USD/JPY firmer at 159.52.

USD/CAD saw a muted reaction towards the slightly hotter-than-expected Canada CPI report. In July, Headline Y/Y rose 3.0% (exp. 2.9%), 0.5% M/M (exp. 0.4%), with the BoC CPI Averages rising 2.2% Y/Y (prev. 2.1%). USD/CAD is currently flat around 1.3875.