US stocks slumped as long-end yields surge post-FOMC - Newsquawk Daily Asia-Pac Market Open

• US stocks sold off, weighed by a combination of continued weakness in the AI trade and heightened volatility surrounding the FOMC. Overnight, SK Hynix earnings failed to impress despite reporting record profits, adding further pressure to semiconductor names and the Nasdaq 100, which is now down more than 10% from its record highs. Industrial names exposed to the AI theme also underperformed after Caterpillar (CAT) fell 6.9% following a downgrade at Baird, which cited expectations for slowing order and backlog momentum in 2027 and 2028. Meanwhile, volatility picked up around the FOMC announcement and Chair Warsh's press conference. As expected, the Fed left rates unchanged, although the decision saw a 9-3 vote split, with Logan, Hammack and Kashkari preferring a 25bp rate hike. The absence of a hike, versus roughly a one-third probability priced before the meeting, initially sparked a dovish reaction across asset classes. However, the moves in equities, gold and the 10-year Treasury quickly reversed during Warsh's press conference. Warsh largely reiterated his commitment to restoring price stability, continued to avoid providing forward guidance and downplayed the significance of the June CPI report in the policy decision. The most notable market reaction came in the Treasury market, where the curve underwent a pronounced steepening, led by the long-end, likely reflecting investors demanding greater term premium amid the continued absence of forward guidance.
• USD was sold as the FOMC's meeting failed to match hawkish expectations. The decision to hold rates was widely expected, although three members opted for a 25bps rate hike; however, a dovish reaction was seen post-rate decision in a likely unwinding of hawkish bets as money markets were pricing in a c. 33% chance of a 25bps hike prior to the confab. The statement was left alone, with no forward guidance, as was expected.
• Looking ahead, highlights include New Zealand Business Confidence, Australian Building Approvals, Export/Import Price Indexes, Japanese Supply.

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LOOKING AHEAD

• Highlights include New Zealand Business Confidence, Australian Building Approvals, Export/Import Price Indexes, Japanese Supply.
• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US President Trump said he was going to let Iran keep talking and that they will be hitting Iran hard, with strikes to take place in response to attacks on US targets in Jordan, while he added that Saudi and US strikes were coordinated with the Iraqi government, according to a Fox interview.
• US President Trump said he was briefed on the Egypt incident and will hit Iran hard, while he added it's our turn to and that Iran is asking us not to hit them. Trump also commented that he would like Iran tariffs in the Russia sanctions bill.
• US was preparing for a major retaliation, according to a senior Israeli security official cited by i24. It was stated that "The Americans are preparing for something bigger than anything we've seen so far", with the US weighing a major operation rather than another limited retaliatory strike, according to sources. The assessment was based not on a single incident but on a series of developments, including Iran's ballistic missile attack on US forces in Jordan, an attack by an Iran-backed Iraqi militia on targets in Saudi Arabia, Iranian threats towards Azerbaijan and Ukraine, Tehran's refusal to reach an arrangement over the Strait of Hormuz, and, according to current assessments, the latest attack in Egypt. Furthermore, Israeli security officials believed the cumulative effect of these events demonstrated Iran was raising the level of confrontation across multiple fronts simultaneously, making a broader and more consequential US response increasingly likely.
• US CENTCOM said the Strait of Hormuz was an international waterway and the IRGC had no authority to dictate routes for free and open traffic flow. It added that commercial vessels continued to use the Strait with US military support and that, since early May, CENTCOM forces had helped around 1,000 vessels and 500mln bbls of crude oil pass through the narrow waterway.
• US announced Iran-related sanctions, imposing sanctions on tankers linked to Iran.
• Iran dominated talks between Israeli PM Netanyahu and US President Trump, while Trump was weighing three options: a nuclear deal, maintaining and intensifying the economic blockade, or renewed military strikes, according to a senior Israeli diplomatic source cited by i24's Azriel. The source said, "We didn't tell Trump Israel's preference is a strike. Our preference is the outcome. The decision is ultimately his." The source added, "We currently do not assess that uranium enrichment is taking place at Pickaxe Mountain, and we have good intelligence on Iran's nuclear material," while warning, "If Iran tries to rebuild its nuclear program, we will strike the 'metastases' as well." The source also said, "We told President Trump we have serious doubts about reaching a nuclear deal with Iran."
• US conflict with Iran was likely to drag on, potentially for months, according to Bloomberg. The report said Iran believed it had an advantage, could withstand a naval blockade, would avoid escalation due to the risk of damage to Gulf Arab states, and that Trump was wary of upside risks to energy prices.
• Saudi Minister of Defence met US VP Vance at the White House on Wednesday and stressed that despite the joint US-Saudi strike on militias in Iraq, the Kingdom still supports de-escalation with Iran, according to sources via Axios.
• A US-owned and operated, Marshall Islands-flagged LNG floating storage facility was struck by at least one UAV while at Egypt's Mediterranean port of Damietta, according to Ambrey. However, Al Hadath said reports of a drone attack targeting Damietta port were false, while Egypt's Petroleum Ministry said a fire broke out on regasification and storage vessels at the port.
• A projectile hit an uninhabited area in a province in northwestern Iran, according to Fars News, although a senior American official said there was no attack.
• Iranian President Pezeshkian called on the nation to "stand firm" against the "enemy", via Al Jazeera.
• Iranian Navy said Iran's armed forces fully controlled the eastern Strait of Hormuz, the Gulf of Oman and the northern Indian Ocean, adding that no movement took place in the Strait without their authorisation, according to Tasnim.
• Three Japanese-linked vessels exited the Strait of Hormuz via Iran's designated route, according to Kyodo.
• A senior official from one of the mediating countries said the commander of the IRGC was the one making the decisions, according to Israel's Channel 12 News' Ravid.
• Iraq's Security Council directed the Foreign Ministry to pursue legal action over US and Saudi strikes.
• Iraq's Kata'ib Hezbollah said a response to the US and Saudi attacks was inevitable, according to Iran International. Separately, ISNA reported the Iraqi Islamic Resistance had postponed its response to the US attacks until after the Arbaeen ceremony, but the response would be definitive.
• Yemen's Houthis were reportedly considering imposing fees on commercial ships sailing through the southern Red Sea, according to sources, while Chinese vessels could be exempt.
• IDF demanded a massive response after Hezbollah's breach, with Israeli officials saying the goal would be to damage significant capabilities that Hezbollah would find painful to lose, according to N12 News.

FOMC

• Fed left rates unchanged at 3.50-3.75%, as expected. However, the meeting produced three dissenting votes, with regional Fed Presidents Logan, Hammack and Kashkari all preferring a 25bps rate hike. The remainder of the statement was largely unchanged from June, continuing to provide no explicit forward guidance. The Committee also reiterated that "The Committee will deliver price stability". The Fed's assessment of the economy was also maintained. The statement continued to note that "Economic activity is expanding at a solid pace", while adding that "Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little."
• Fed Chair Warsh said the discussion was collegial and that there is no soft inflation target, as well as stated the economy is showing impressive resilience even with recent shocks, while trends are positive, and reveal solid growth. Warsh said the 5-plus years of inflation above target cannot be cured in 9 weeks, or by a single month of modest price decreases, but stated the Fed will not waver and that one key development has been that nominal and real yields are materially higher across the Treasury curve. Furthermore, he stated that where necessary and appropriate, they will not hesitate to act.
• Fed Chair Warsh said in the Q&A that they had a good family fight, and there was a lot of agreement that they can deliver stable prices, while he responded "not much" and that they are not relying on one individual piece of data when asked how much was not hiking in July due to June core CPI. Warsh stated in the period ahead, they have important decisions to make about the policy rate and will continue to watch market information to see how it responds and how it can help the Fed inform their decision-making. Warsh also commented that if inflation continues to be elevated through the forecast period, interest rates could well be part of fixing that, while they will not tolerate a higher inflation target and will deliver price stability. Furthermore, when asked about Jackson Hole being a reset for policy, Warsh said he looks at it like a blank piece of paper right now and would like it to frame the big questions, while he will be checking with task forces before Jackson Hole.

US TRADE

• US stocks sold off, weighed by a combination of continued weakness in the AI trade and heightened volatility surrounding the FOMC. Overnight, SK Hynix earnings failed to impress despite reporting record profits, adding further pressure to semiconductor names and the Nasdaq 100, which is now down more than 10% from its record highs. Industrial names exposed to the AI theme also underperformed after Caterpillar (CAT) fell 6.9% following a downgrade at Baird, which cited expectations for slowing order and backlog momentum in 2027 and 2028. Meanwhile, volatility picked up around the FOMC announcement and Chair Warsh's press conference. As expected, the Fed left rates unchanged, although the decision saw a 9-3 vote split, with Logan, Hammack and Kashkari preferring a 25bp rate hike. The absence of a hike, versus roughly a one-third probability priced before the meeting, initially sparked a dovish reaction across asset classes. However, the moves in equities, gold and the 10-year Treasury quickly reversed during Warsh's press conference. Warsh largely reiterated his commitment to restoring price stability, continued to avoid providing forward guidance and downplayed the significance of the June CPI report in the policy decision. The most notable market reaction came in the Treasury market, where the curve underwent a pronounced steepening, led by the long-end, likely reflecting investors demanding greater term premium amid the continued absence of forward guidance. Following the meeting, money markets pushed back expectations for further tightening, with a 25bp hike no longer fully priced by year-end, while attention turns to Friday, when markets will hear from Logan, Hammack and Kashkari, providing further insight into the rationale behind their dissents.
• SPX -1.52% at 7,316, NDX -2.06% at 27,192, DJI -2.19% at 51,599, RUT -1.61% at 2,906.
• Click here for a detailed summary.

TARIFFS/TRADE

• Canada's US Trade Minister said he had a comprehensive meeting with USTR Greer and agreed to stay in close contact.

NOTABLE HEADLINES

• US President Trump said Fed Chair Warsh is brilliant, while he added that Warsh has a board, and it is a political one. Furthermore, Trump said Warsh would love to see lower interest rates.

AFTER-MARKET EARNINGS

• Meta Platforms Inc (META) Q2 2026 (USD): EPS 6.18 (exp. 7.19), Revenue 60.8bln (exp. 60.22bln)
• Microsoft (MSFT) Q4 2026 (USD): Adj. EPS 4.74 (exp. 4.24), Revenue 90bln (exp. 87.62bln)
• QUALCOMM (QCOM) Q3 (USD): Adj. EPS 2.21 (exp. 2.23), Revenue 9.95bln (exp. 9.68bln)
• ARM Holdings (ARM) Q1 2027 (USD): Adj. EPS 0.45 (exp. 0.40), Revenue 1.29bln (exp. 1.26bln)

FX

• USD was sold as the FOMC's meeting failed to match hawkish expectations. The decision to hold rates was widely expected, although three members opted for a 25bps rate hike; however, a dovish reaction was seen post-rate decision in a likely unwinding of hawkish bets as money markets were pricing in a c. 33% chance of a 25bps hike prior to the confab. The statement was left alone, with no forward guidance, as was expected. Warsh stuck to his usual tone, giving no forward guidance, reiterating commitment to the 2% target, whilst noting the decision not to hike in July was not much influenced by the June core CPI reading, stressing the importance of trends. In the near term, focus will remain on geopolitics but will look towards the upcoming dissenters' reasoning for their call to hike by 25bps, namely, remarks from Fed's Logan, Hammack, and Kashkari - inflation is likely to be the centre of all statements.
• EUR rallied back above the 1.1400 level on the back of the post-FOMC dollar selling.
• GBP regained a firm footing in 1.3300 territory, while participants now await the BoE.
• JPY was choppy on the day but ultimately strengthened as the dollar was hit as Fed rate hike bets unwound.
• BoC Minutes stated some members were split over the sustainability of the rebound, while some members were concerned about signs of an upward drift in medium-term inflation expectations, although all agreed longer-term inflation expectations remained well anchored. Furthermore, members agreed to reiterate in their communications that they would not allow higher oil prices to lead to persistent inflation.

FIXED INCOME

• T-notes saw a pronounced steepening following the FOMC meeting, where the Fed left rates unchanged, as expected, although the decision saw three dissenters—Logan, Hammack and Kashkari—who all preferred a 25bps rate hike. The statement itself generated a dovish market reaction, with front-end Treasury yields initially falling as participants unwound hawkish positioning built ahead of the meeting, with money markets having priced around a 33% probability of a hike. Attention then shifted to Chair Warsh's press conference, which ultimately triggered a pronounced steepening of the Treasury curve, led by the long-end. While front-end yields remained lower on the session, longer-dated maturities sold off sharply, with the 30-year yield briefly rising above 5.20%, its highest level since 2007. Warsh again refrained from offering any forward guidance, instead emphasising that markets should react to incoming data rather than Fed communication. The continued absence of guidance may be encouraging investors to demand additional term premium further out the curve, reflecting greater uncertainty over the future policy path.

COMMODITIES

• Oil prices surged as US/Iran tensions once again escalated. The main headline mover in the US session, which sent benchmarks to highs in the following hours, was Trump stating "we'll be hitting Iran hard" and that strikes will take place in response to attacks on US targets in Jordan.
• US EIA Crude Oil Stocks Change (Jul/24) -7.167M vs. Exp. -2.50M
• US Energy Secretary Wright said 13mln BPD of oil had left the Gulf region over the past week, while the US military was escorting oil and gas shipments through the Strait of Hormuz. He added that half of that oil was flowing through pipelines and that the Strategic Petroleum Reserve remained a long way from its operational minimum.
• US President Trump said UK PM Burnham told him he would open the North Sea for oil.
• Russia was preparing to extend its diesel export ban by one month, although the restriction could be lifted in mid-August if the domestic supply situation improved, according to Reuters citing sources.

GEOPOLITICAL

RUSSIA-UKRAINE

• Ukrainian President Zelensky said a massive Russian attack on Ukraine is likely this evening.

ASIA-PAC

NOTABLE HEADLINES

• Japan's Chief Cabinet Secretary said the government would not pre-determine whether to use reserve funds for earthquake relief.
• South Korean lawmaker said the Finance Minister, BoK Governor and financial regulatory chiefs would meet on Thursday afternoon.

EU/UK

NOTABLE HEADLINES

• UK Foreign Secretary Miliband would play a "greater role" in the UK's Brexit reset talks than previous foreign secretaries, the FCDO told POLITICO.
• ECB's Patsalides said as inflation risks rose, the balance shifted towards pre-emptive action, according to EconoStream. Patsalides stated that there was no evidence favouring a July rate hike, second-round effects were not evident, and inflation expectations remained anchored. He also noted that if higher oil prices persisted, inflation risks would rise, and that changes in projections did not obligate the ECB to act, while he added that policy could not depend on today's yield curve, and scenarios could be changed or updated after September data.

DATA RECAP

• German Import Prices (Jun) M/M -0.7% vs. Exp. -0.8% (Prev. 0.7%)
• German Import Prices (Jun) Y/Y 6.1% vs. Exp. 6.0% (Prev. 6.8%)