US stocks declined and oil continued to surge, while all focus turns to the FOMC - Newsquawk Daily Asia-Pac Market Open

• US 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 in the red, with weakness led by Consumer Discretionary, Communication Services and Utilities, although Energy bucked the trend as crude prices rallied amid 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.
• USD was firmer amid the broad risk-off sentiment and surging oil prices, to the detriment of its G10 peers. Dollar-specific newsflow was sparse ahead of the pivotal FOMC decision, where money market pricing is leaning towards a 25bps hike, although such a move is not quite a foregone conclusion.
• Looking ahead, highlights include New Zealand Current Account, Japanese Trade Data & Machinery Orders, Australian MI Leading Index, Supply from Australia.

1. Subscribe to the free premarket movers reports

2. Trial Newsquawk’s premium real-time audio news squawk box for 7 days

LOOKING AHEAD

• Highlights include New Zealand Current Account, Japanese Trade Data & Machinery Orders, Australian MI Leading Index, Supply from Australia.
• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US VP Vance told the NY Post that the conflict with Iran is expected to shift into a "much different phase" in the coming months. Vance said that the first phase of the conflict, focused on destroying Iran’s nuclear programme, conventional military, and power-projection capabilities, is complete, with the current focus shifting to preventing the regime from rebuilding.
• US Treasury Secretary Bessent said the US is now ending the Iran threat rather than managing it, and has seen "forward-facing" statements on Iran from the UAE. Bessent added the Treasury recently sent an official to the UAE for productive talks, while he has held good private discussions with China on Iranian financial links and will meet Vice Premier He Lifeng this weekend. Furthermore, he said that Trump and Xi will continue discussions on Iran at the summit later this month.
• US military and Gulf countries have begun conducting daytime tanker transits through the Strait of Hormuz, rather than only at night as in recent months, according to Axios.
• US military attacked two Iranian small boats on Monday after the IRGC attempted to steal a Navy drone patrolling Hormuz, while US CENTCOM stated that Iran "unsuccessfully" attempted to seize a US unmanned surface vessel.
• Iran and Pakistan reportedly cooperate to ensure regional security, according to Tasnim.
• Iranian government aircraft reportedly landed in Saudi Arabia, raising speculation that an Iranian delegation may be visiting Riyadh amid escalating Saudi-Houthi tensions.
• Qatar’s Foreign Ministry said Qatar is working with regional and international partners to reach a consensus on the Strait of Hormuz, according to Al Araby TV.
• Top military commanders from the US, Israel, Saudi Arabia, the UAE, Bahrain, Kuwait, Qatar, Jordan and Egypt held a secret meeting in Germany last week, according to Axios citing sources. US CENTCOM commander Cooper reportedly reassured regional partners that the US will maintain its military presence despite Iranian attacks on bases and outlined plans to expand shipping traffic through the Strait of Hormuz.
• Israel and Saudi Arabia, with CENTCOM assistance, are also discussing Israeli support for Saudi operations against the Houthis, including intelligence assistance modelled on Israel's support for the UAE.
• Saudi Arabia and the forces it backs in Yemen are struggling to counter the Houthi advance and are unlikely to regain the key Red Sea port of Mokha, which the Houthis captured last week, according to assessments from several Western European militaries cited by Bloomberg.
• Yemen Houthi militia is digging trenches near Bab al-Mandab and laying mines in the sea, according to Al Arabiya citing sources.
• Sirens were activated and explosions heard in the Jizan and Abha regions of Saudi Arabia, according to Fars News.
• US is reportedly preparing to sell 2,000lb bombs to Israel, according to WaPo.
• Oman’s Foreign Minister spoke with US Secretary of State Rubio by phone to discuss regional developments, de-escalation efforts, diplomatic initiatives and outstanding issues affecting regional security and stability, according to Oman’s state news agency.

US TRADE

• US 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 in the red, with weakness led by Consumer Discretionary, Communication Services and Utilities, although Energy bucked the trend as crude prices rallied amid 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.
• SPX -0.45% at 7,585, NDX -0.78% at 28,938, DJI -0.63% at 52,093, RUT -0.68% at 2,873.
• Click here for a detailed summary.

TARIFFS/TRADE

• China and the US are reportedly discussing cuts to tariffs on agriculture and energy, according to sources.
• German Chancellor Merz said China distorts trade through subsidised overproduction, while cooperation and trade have been significantly reduced by new US tariff rules. He added that Germany will respond to fuel price gouging, saying the burden on many people has reached the limit of what they can bear.

NOTABLE HEADLINES

• US Treasury Secretary Bessent said the USD continues to thrive in global transactions and the decline in reserve holdings is mainly due to Russia and China. He added that fiscal consolidation is coming and a strong USD depends on regulatory, tax, trade and energy certainty.
• US Treasury Secretary Bessent said the Treasury’s bond buyback intervention was successful and it recently held two of its most successful auctions in 20 years, while he said the government should not set an equilibrium yield level and that addressing the deficit is one factor affecting the 10-year Treasury yield. Bessent also commented that USD 5K checks are a good idea, as well as urged lawmakers not to waive AI liability and said AI firms should not receive a "blank check on liability".
• US NEC Director Hassett praised private-sector safeguards amid concerns over AI myths and said Trump believes the US already has the tools needed to regulate AI, while Hassett added that it is not an antitrust issue for AI firms to warn each other.
• OpenAI said it is collaborating with Anthropic and Google (GOOGL) on AI safety.

DATA RECAP

• US NY Empire State Manufacturing Index (Sep) 7.60 vs. Exp. 14.75 (Prev. 20.60)
• US ADP Employment Change Weekly 16.25K (Prev. 12K)

FX

• USD was firmer amid the broad risk-off sentiment and surging oil prices, to the detriment of its G10 peers. Dollar-specific newsflow was sparse ahead of the pivotal FOMC decision, where money market pricing is leaning towards a 25bps hike, although such a move is not quite a foregone conclusion.
• EUR traded rangebound amid a lack of FX-related catalysts, while comments from ECB's Moulin that the inflation outlook justified the recent ECB rate rise provided little to shift the dial.
• GBP mildly weakened and lingered beneath the 1.3500 handle heading into UK inflation data.
• JPY remained pressured with USD/JPY rising back above the 155.00 level amid higher US yields and upside in oil, while there were plenty of comments from US Treasury Secretary Bessent at the House Financial Services Committee hearing, where he spoke on a wide range of topics and defended yen intervention.

FIXED INCOME

• T-notes settled lower and the yield curve steepened, although price action was relatively contained ahead of Wednesday's key FOMC rate decision.

COMMODITIES

• Oil prices surged as a series of geopolitical and supply headlines pushed benchmarks higher, including an announcement by Libya's NOC that production and operations were 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. Furthermore, Saudi Arabia 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 recent attack on the East-West pipeline.
• Saudi Arabia is reportedly informing some European oil refiners that their September crude cargo loadings have been cancelled, according to sources.
• Oil loadings at Saudi Arabia’s Yanbu port have reportedly been suspended following the earlier attack on the East-West pipeline, according to sources.
• US Energy Secretary Wright said he expects the pipeline to resume operations very soon, with its reopening measured in days.
• US official said Saudi Arabia has "significantly increased" the number of oil tankers it sends through the Strait of Hormuz, where roughly 14mln barrels of oil are exported daily.
• US Senate Majority Leader Thune said he is "willing to consider" a ban on diesel exports.
• Polish Energy Minister said a meeting with US Secretary Burgum discussed LNG, nuclear energy, new technologies and further cooperation on supply security in Central and Eastern Europe.
• Half of Russia’s leading diesel-producing refineries have reduced output following drone strikes, while the Kirishi refinery has fully shut after Ukrainian attacks.
• Libya’s NOC said production and operations have been suspended at three oil fields after a valve on the Al-Hamada-Zawiya pipeline was closed and it may need to declare force majeure if the pipeline remains shut. However, the head of Libya's NOC later said that production remains around 1.4mln bpd and related shutdowns have not materially affected output. Furthermore, he said oil exports are continuing normally, and Sharara oilfield production remains normal.

GEOPOLITICAL

RUSSIA-UKRAINE

• Ukrainian President Zelensky said Ukraine is prepared to take de-escalation measures, but partners must ensure Russia is sincere in implementing long-term and reliable measures affecting Ukraine’s critical infrastructure.
• Russia Foreign Minister Lavrov said the US has never offered Russia concessions over the Ukraine conflict in exchange for Moscow’s assistance in resolving the Iranian issue, while he added that Russia will fulfil all supply obligations despite Western obstacles and is restructuring logistics to bypass them.
• Kremlin said Russia will remain in contact with the US over the energy truce proposal and supports Trump’s proposed ceasefire on Ukrainian energy targets. It added that global energy prices would fall if sanctions were lifted and stressed the need to ensure safe navigation and shipping.
• Russian Defence Ministry said Russian forces hit a tanker in Ukraine’s port of Izmail, according to Interfax.

OTHER

• US Treasury Secretary Bessent said the US has taken control of many Venezuelan assets.

ASIA-PAC

NOTABLE HEADLINES

• US Treasury Secretary Bessent said the US had been in constant dialogue with Japan over intervention and used a "nominal amount" for yen intervention. He added that a stronger yen is better for US exporters and that the US made tens of millions of dollars from the intervention.
• Japanese Finance Minister Katayama said upcoming legislation will limit a food sales tax cut to two years and Japan will assess tax revenue, review spending and aim to lower the debt-to-GDP ratio, while controlling new debt issuance through initial and supplementary budgets. She added that she was unaware of reports the government plans to raise defence spending to 3.5% of GDP.
• China NDRC reportedly pledged to target policies involving subsidised overproduction.
• China’s State Administration for Market Regulation and Ministry of Culture and Tourism instructed Meituan (3690 HK), Douyin, JD (JD), Trip.com (TCOM), Tongcheng and Fliggy to strengthen compliance, address competition risks and support orderly tourism.
• ByteDance’s H1 profit reportedly fell by a single-digit percentage to USD 20bln amid AI spending, while revenue rose around 30% on strong international advertising growth, according to The Information citing sources.

EU/UK

NOTABLE HEADLINES

• ECB’s Moulin said the rise in long-term bond yields reflects higher supply and inflation expectations, adding that the inflation outlook justified the recent ECB rate rise. He also stated that member states must reduce budget deficits, and that France’s debt agency has no difficulty selling bonds or raising funds, and there are no plans to change French mortgage lending rules.
• France is prepared to support Dutch central banker Klaas Knot to succeed Christine Lagarde as ECB President if a French candidate is appointed the bank’s chief economist, according to reports.
• French PM Lecornu plans to keep government spending at "exactly" the same level in 2027 as in 2026, according to Les Echos citing a letter.
• German Chancellor Merz said he sees no factual or legal basis for a windfall profit tax when asked about fuel prices.

DATA RECAP

• UK Employment Change (Jul) 67K (Prev. 83K)
• UK Unemployment Rate (Jul) 4.9% vs. Exp. 5.0% (Prev. 4.9%)
• UK Average Earnings incl. Bonus (Jul 3MYr) 3.9% vs. Exp. 3.9% (Prev. 4.2%)
• UK Average Earnings excl. Bonus (Jul 3MYr) 3.5% vs. Exp. 3.5% (Prev. 3.5%)
• German Wholesale Prices (Aug MM) 0.9% vs. Exp. 0.1% (Prev. 0.2%)
• German Wholesale Prices (Aug YY) 6.8% (Prev. 5.3%)
• German ZEW Economic Sentiment Index (Sep) 34.7 vs. Exp. 37 (Prev. 34.2)
• German ZEW Current Conditions (Sep) -47.1 vs. Exp. -52.2 (Prev. -61.1)
• European ZEW Economic Sentiment Index (Sep) 25.8 vs. Exp. 39.9 (Prev. 31.4)