US stocks gained in a reversal of the post-FOMC moves amid Fed credibility boost and lower oil prices - Newsquawk Daily Asia-Pac Market Open

• US stocks rallied and the Nasdaq outperformed, although gains were broad-based with the RSP +0.5%, while sectors were predominantly higher with advances led by Technology, Consumer Discretionary and Utilities, although Consumer Staples and Financials underperformed, closing marginally lower. The hawkish Fed reaction seen on Wednesday was broadly pared across markets on Thursday, with participants instead focusing on improved Fed credibility in its efforts to return inflation to target following the rate hike and Chair Warsh's steadfast commitment to restoring price stability, despite pressure from US President Trump for lower rates. This view helped support lower yields across the curve, resulting in a bull flattening, with the long end outperforming, with lower oil prices also supporting the move in Treasuries.
• USD was lower, paring some of its post-Fed strength to the benefit of most G10 FX peers. In terms of the broader reversal in US assets, Treasury yields were lower across the curve, with some citing improved Fed credibility as markets appeared to take greater confidence in Chair Warsh's commitment to return inflation to target. Elsewhere, Dollar-specific newsflow was fairly light; despite plenty of US data, none of it was tier one, and it ultimately failed to move the needle. Jobless Claims were strong, maintaining the recent trend of low claims. However, Housing Starts and Building Permits missed expectations, while the Philly Fed index declined M/M but still beat the consensus, and Pending Home Sales were soft.
• Looking ahead, highlights include New Zealand Trade Data & Food Price Index, Japanese National CPI, Malaysian Trade & Inflation Data, BoJ Rate Decision, Comments from BoJ Governor Ueda & RBA Governor Bullock, Supply from Australia.

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LOOKING AHEAD

• Highlights include New Zealand Trade Data & Food Price Index, Japanese National CPI, Malaysian Trade & Inflation Data, BoJ Rate Decision, Comments from BoJ Governor Ueda & RBA Governor Bullock, Supply from Australia.
• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US President Trump told Axios he is at a "critical juncture" regarding the war in Iran, weighing whether to launch massive new attacks or pursue a different path to end the conflict. Trump said he has a big decision coming up and pondered whether he wants to go in and annihilate them or not, while he said anything could happen with him. Furthermore, Trump declined to say whether he will decide on the path forward before or after the midterms, while he and Hegseth have ordered the military to maintain its level of forces in the Middle East until the end of the year to remain ready for a potential return to full-scale combat.
• US senior official told Al Jazeera the US is focused on ensuring navigation in the Red Sea and allowing its partners to manage security challenges. US is in constant communication with Saudi Arabia and the Yemeni government regarding regional stability and expects the Houthis to continue adhering to the ceasefire condition.
• US Senator Kaine said the Senate could hold its next vote on Iran war powers as soon as today or early next week, adding there could be more to come before the election.
• US approves visas for top Iranian leaders to attend the UN high-level meeting, even with sides at war, according to AP.
• US said it imposed sanctions on cryptocurrency exchange Bitbank, accusing it of enabling the Iranian government.
• Political adviser to Iran's Supreme Leader said the Strait of Hormuz will not be reopened until US President Trump and Israeli PM Netanyahu are “brought down from the seat of power”, Tasnim reports.
• IRGC said it intercepted and destroyed a US MQ-9 drone over Qeshm Island under the command of the national integrated air defence network.
• Satellite images reportedly reveal Iran rebuilding a previously bombed nuclear site.
• Smoke rose from a Saudi oil facility in Yanbu after a Houthi attack, Journalist Elster posted.
• High-ranking source told Al Mayadeen that Saudi Arabia has asked Oman to request a two-week truce from the Houthis, during which discussions will be held to address the humanitarian situation. Saudi Arabia confirmed that an agreement on the humanitarian situation in Yemen will be announced during the truce period.
• China reportedly pressed Iran to help rein in the Houthis after a Saudi appeal, according to Reuters citing sources.
• Pakistani Army Chief reportedly urged Iran to convince the Yemeni Houthis not to attack Saudi Arabian energy facilities, according to Kan's Kais.
• Pakistan's delegate said there is an urgent need for diplomatic engagement to resolve outstanding issues surrounding Iran, Al Hadath reported.
• Yemeni sources suggested recent operations have disrupted Saudi oil exports for months to come, Tasnim reported.
• Yemeni Presidential Leadership Council President said there will be no retreat from restoring the state, adding the armed forces are capable of regaining the initiative on the western coast.
• UKMTO received a report of an incident 75 NM east of Yemen's Aden, with a westbound tanker reporting that a skiff pursued and attempted to intercept the vessel. UKMTO also said it received a report of a security incident in the Strait of Hormuz 16 NM Northeast of Khasab, Oman.
• Israeli military said it expects a response from Hezbollah in the coming days or weeks, adding it is deployed several kilometres deep inside Lebanese territory as a defensive security belt. Israeli military said operations in the Ali al-Taher hill in southern Lebanon were decisive and achieved dramatic results, while Hezbollah has not been completely eliminated militarily.

US TRADE

• US stocks rallied and the Nasdaq outperformed, although gains were broad-based with the RSP +0.5%, while sectors were predominantly higher with advances led by Technology, Consumer Discretionary and Utilities, although Consumer Staples and Financials underperformed, closing marginally lower. The hawkish Fed reaction seen on Wednesday was broadly pared across markets on Thursday, with participants instead focusing on improved Fed credibility in its efforts to return inflation to target following the rate hike and Chair Warsh's steadfast commitment to restoring price stability, despite pressure from US President Trump for lower rates. This view helped support lower yields across the curve, resulting in a bull flattening, with the long end outperforming, with lower oil prices also supporting the move in Treasuries.
• SPX +1.14% at 7,638, NDX +1.73% at 29,447, DJI +0.61% at 51,783, RUT +0.55% at 2,875
• Click here for a detailed summary.

TARIFFS/TRADE

• US President Trump and Mexican President Sheinbaum spoke by phone on Wednesday as the two countries close in on a trade deal, according to Politico citing sources. The person familiar with the call described the conversation as “so-so” and said that it “created a bit of noise” as “new topics” were introduced into the leaders’ discussion.
• US is expected to delay the announcement of new tariffs over allegations of trading partners’ excess manufacturing capacity at least until after next week’s planned Trump-Xi summit, according to Bloomberg citing people familiar with the matter.
• China's MOFCOM said Chinese and US trade teams are maintaining close contact on negotiations over mutual tariff reductions covering USD 30bln, adding updates will be published when appropriate. MOFCOM also said China is highly concerned about a “Europe First” clause in the European Commission's draft public procurement law, urging the EU to comply with WTO rules, maintain open markets and amend discriminatory provisions affecting third-country companies.
• China's Commerce Minister Wang held a video call with EU Trade Commissioner Sefcovic to discuss China-EU economic and trade issues, while the EU Commission said Sefcovic is to meet his Chinese counterpart on October 8th-9th.
• Germany's Vice Chancellor Klingbeil urged the EU to rapidly introduce tariffs on Chinese hybrid vehicles and sought clarification on specifications for local production, according to Handelsblatt.

NOTABLE HEADLINES

• An attempt by Senate Republicans to quickly pass a bipartisan bill to prevent data centre-related utility cost increases failed on Thursday, amid Democratic concerns that it would rely only on voluntary commitments from states and data centre developers.

DATA RECAP

• US Philadelphia Fed Manufacturing Index (Sep) 37.8 vs. Exp. 30.5 (Prev. 47.4).
• US Pending Home Sales (Aug MM) 0.3% vs. Exp. 2% (Prev. -2.6%).
• US Building Permits Prel (Aug) 1.394M vs. Exp. 1.41M (Prev. 1.433M).
• US Housing Starts (Aug) 1.275M vs. Exp. 1.31M (Prev. 1.309M).
• US Initial Jobless Claims (Sep/12) 196K vs. Exp. 208K (Prev. 206K).
• US Continuing Jobless Claims (Sep/05) 1730.0K vs. Exp. 1780K (Prev. 1769.0K).

FX

• USD was lower, paring some of its post-Fed strength to the benefit of most G10 FX peers. In terms of the broader reversal in US assets, Treasury yields were lower across the curve, with some citing improved Fed credibility as markets appeared to take greater confidence in Chair Warsh's commitment to return inflation to target. Elsewhere, Dollar-specific newsflow was fairly light; despite plenty of US data, none of it was tier one, and it ultimately failed to move the needle. Jobless Claims were strong, maintaining the recent trend of low claims. However, Housing Starts and Building Permits missed expectations, while the Philly Fed index declined M/M but still beat the consensus, and Pending Home Sales were soft.
• EUR eked out slight gains against the dollar but with the upside capped by resistance near the 1.1500 handle, while ECB's Makhlouf and Rehn noted no signs of second-round effects of inflation yet.
• GBP was the clear G10 laggard and saw losses against the Greenback following the latest BoE confab in which the Bank kept rates on hold at 3.75% in a 6-3 vote split, as expected. Overall, the meeting offered balanced arguments on the economy, with the statement highlighting that inflation risks remain tilted to the upside and adding that waiting too long for evidence of second-round effects would not be appropriate. Nonetheless, the pressure was likely aided by UK yields easing from their highs after the Bank announced it would pause APF gilt sales until April 2027 and confirmed it would not sell long-dated gilts into the market.
• JPY benefited from the softer dollar, with participants awaiting the BoJ decision in which policymakers are widely expected to hike rates by 25bps to 1.25%, with money markets fully pricing such a move.
• Taiwanese Interest Rate Decision 2.00% vs. Exp. 2.00% (Prev. 2.00%).
• Czech CNB Interest Rate Decision 3.75% vs. Exp. 3.75% (Prev. 3.75%).

FIXED INCOME

• T-notes settled higher in a reversal of the post-Fed move, with the yield curve bull flattening as Fed credibility got a boost following Wednesday's hike.

COMMODITIES

• Oil prices were lower as a series of de-escalatory headlines appeared to outweigh continued Middle East supply risks. On the former, China reportedly pressed Iran to help rein in the Houthis following a Saudi appeal, while Saudi Arabia reportedly asked Oman to seek a two-week truce with the Houthis, with both headlines prompting downside in energy benchmarks, while Pakistan's Army Chief urged Iran to convince the Yemeni Houthis to not attack Saudi Arabian energy facilities.
• Three pumping stations along Saudi Arabia's East-West pipeline were damaged in an attack last week (prev. reported as two), while a repair timeline is unclear.
• Oil refinery in Russia's Yaroslavl region halted crude processing after a drone attack.

GEOPOLITICAL

MIDDLE EAST

• US forces began dismantling and transferring air defence systems from their positions in the Kurdistan Region, according to Al Hadath. Sources stated the withdrawal of international coalition forces from Iraq continues, with more than one military convoy departing daily.

RUSSIA-UKRAINE

• White House official confirmed Trump plans to sign the Russia sanctions bill, AP reports, adding it is unclear when.
• Russia's Kremlin said implementation of new sanctions by the US will make it harder to find a peace deal on Ukraine.
• Russian-Chinese veto blocked a US draft resolution to extend the work of the sanctions committee on Iran, Al Hadath reports.

OTHER

• US President Trump said progress is being made toward establishing a US Army base in Poland.

ASIA-PAC

NOTABLE HEADLINES

• Japanese PM Takaichi said fiscal sustainability cannot be maintained without economic growth, adding that she will accelerate policy to achieve strong growth under proactive fiscal policy. Takaichi said ministers in charge of key policies such as economic and fiscal policy, growth strategy and areas key to diplomatic relations with foreign governments will be retained. Takaichi added this is the first year for proactive fiscal policy.
• PBoC Deputy Governor met with PayPal's (PYPL) Allen on Tuesday to discuss global financial markets, payment systems and PayPal's expansion in China.

EU/UK

NOTABLE HEADLINES

• BoE held rates at 3.75%, as expected, voting 6-3, with Greene, Mann and Pill voting for a 25bps hike. BoE unanimously voted to reduce the stock of UK government bond purchases held for monetary policy purposes to zero. BoE plans GBP 20bln annual gilt sales alongside maturities, with the stock unwound at an average annual pace of GBP 46bln by end-2034.
• BoE said it stands ready to act as necessary to ensure CPI inflation remains on track to meet its 2% target in the medium term. BoE said the policy stance required will depend on the scale and duration of the energy shock and how it propagates through the economy. Risks to the inflation outlook are tilted to the upside, and more so than at the time of the July Monetary Policy Report. BoE said it is not appropriate to wait too long for evidence of second-round effects before responding with policy.
• BoE Governor Bailey said it is still early days on inflation risks from the Iran war, but they are quite subdued so far. Bailey said monetary conditions have tightened quite a bit this year because markets were expecting rate cuts, adding the outlook is too uncertain to judge market bets on four rate hikes, while he did not discuss the prospect of raising interest rates four times.
• ECB's Makhlouf said he is not seeing signs of second-round effects, adding the outlook is uncertain. Makhlouf said every meeting is a live meeting, but the ECB is meeting-by-meeting, while inflation risks are tilted to the upside.
• ECB's Rehn said there are no signs of second-round effects of inflation yet. Rehn added energy markets may not return to pre-war levels, the euro-area economy has shown resilience, and the inflation outlook is "somewhat" complex.
• ECB's Zigman said market bets do not determine the ECB's next steps, and there is a lot of optimism for growth, adding he does not see any major second-round effects and growth is at risk if inflation is not tackled.
• French PM Lecornu said ongoing austerity measures this year mean the 2026 deficit should remain well below 5.5% of GDP. Lecornu said the deficit target in the draft budget reaches 5% of GDP for 2027 and that taxes will not be raised.
• French Defence Minister said the 2027 budget will include savings measures totalling EUR 54bln.