Futures are lower as we close out the quarter/month, ahead of what is a most likely (80% odds on Polymarket) government shutdown. As of 8:00am ET, S&P and Nasdaq futures are down 0.2% as sentiment sours after Monday’s optimism. Still, on the final trading day of the month, the S&P 500 is on track for its best September since 2010. Pre-market, Mag7 are all lower with Semis mixed; Defensives seeing outperformance relative to Cyclicals. Within commodities, virtually everything is lower ex-nat gas; gold/silver are down 86 and 196bps, respectively, on what looks like profit-taking / rebalancing with crude lower on potential increased OPEC+ supply. Bond yields are lower as the curve bull steepens; the USD is weaker, sitting ~1% above its 52-wk low. Gold fell toward $3,800 an ounce after touching a fresh all-time high earlier Tuesday just shy of $3900. After surging more than 10% this month on optimism over US interest rate cuts and haven demand, traders speculated that Chinese investors pared exposure ahead of the Golden Week holiday. Late on Monday, Trump set 10% tariffs on timber and 25% on kitchen cabinets as of Oct 14. Today’s macro data focus is JOLTS, Consumer Confidence, Housing Price Indices, and regional activity indicators. Expect headlines on the shutdown through the day, which most traders do not expect having a material impact on markets.
In premarket trading, Mag 7 stocks are mostly lower (Amazon -0.02%, Meta -0.1%, Nvidia +0.2%, Alphabet -0.1%, Microsoft -0.2%, Apple -0.3%, Tesla -0.7%).
Celsius Holdings (CELH) rises 3% after Morgan Stanley upgraded the energy-drink maker to overweight from equal-weight, citing topline growth ahead.
EchoStar (SATS) rises 8% as Verizon Communications is said to be in discussions with the company about purchasing some of its wireless spectrum.
Energy Fuels Inc. (UUUU) falls 7% after a $550 million offering of six-year convertible bonds.
Firefly Aerospace (FLY) is down 10% after the company disclosed an incident during a test at its facility in Texas that resulted in the loss of a rocket stage.
Oklo (OKLO) falls 3% while NuScale Power (SMR) drops 4% after Bank of America downgraded the nuclear companies, seeing valuations as unrealistic at this stage of small modular reactor development.
QuantumScape (QS) climbs 4% after saying it will jointly develop with Corning ceramic-separator manufacturing capabilities for QS solid-state batteries.
Semtech (SMTC) rises 3.7% after Oppenheimer raised the stock to outperform, saying the semiconductor firm’s active copper cable offerings can win market share among hyperscalers and drive sales growth.
Vail Resorts (MTN) slips 2% after providing a profit outlook that missed expectations as the company sold fewer passes than it previously expected for the upcoming ski season.
In corporate news:
BHP Group Ltd. retreated in London after China’s state-run iron ore buyer temporarily halted purchases from the Australian miner. The dollar edged lower, erasing September’s advance.
Boeing Co. has started working on a next-generation single-aisle aircraft that could eventually replace the 737 Max, the Wall Street Journal reported.
Coty has begun a strategic review of its consumer beauty brands.
DeepSeek updated an experimental AI model in what it called a step toward next-generation artificial intelligence.
EchoStar Corp. shares jumped in premarket trading as the satellite-TV company engaged in talks to sell some of its wireless spectrum to Verizon Communications Inc.
Exxon Mobil Corp. plans to cut about 2,000 jobs globally as the Texas oil company consolidates smaller offices into regional hubs as part of its long-term restructuring plan.
Spotify Technology SA names Alex Norström and Gustav Söderström co-CEOs.
UBS Group AG reiterated its scathing critique of Switzerland’s planned changes to banking regulation, saying they may put the firm’s role in the country at risk.
Jefferies posted its best fiscal third-quarter revenue ever, buoyed by what the firm said is a strengthening environment for dealmaking and trading activity across the globe. Higher expenses were the “one sticking point” in the overall better-than-expected results, according to Bloomberg Intelligence’s Neil Sipes.
All eyes are on today’s government shutdown. Vice President JD Vance said the US government is on track for a shutdown after President Donald Trump’s last-ditch meeting with congressional leaders ended without a deal. Many federal operations would pause if lawmakers fail to compromise before the fiscal year ends.
The Bureau of Labor Statistics — responsible for a number of gold-standard US economic releases — would cease operations and likely delay Friday’s payroll report in the event of a shutdown. “We advise investors to look past shutdown fears and focus on other market drivers,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management. “We continue to prefer quality fixed income, particularly those with medium-term maturities, which we believe offers a compelling combination of income and resilience.”
Tariffs are back in focus. Trump ordered 10% duties on imports of softwood timber and lumber as well as 25% levies on some wood furniture products. China’s state-run iron ore buyer told major steelmakers and traders to temporarily halt purchases of all new cargoes from Australian miner BHP, widening an earlier curb as a price dispute escalated, according to people familiar.
Elsewhere, traders are looking ahead to a series of US labor reports due this week to gauge the Fed’s next move, with the release of Friday’s key payrolls report in doubt amid a budget impasse in Congress. The uncertainty comes as the S&P 500 is headed for its best September in 15 years, fueled by looser policy, strong earnings and optimism over artificial intelligence.
“The main focus will be the US labor market, which should either confirm or challenge expectations of two more rate cuts in 2025,” said Susana Cruz, a strategist at Panmure Liberum. “If the shutdown delays the release, that could spark some anxiety.”
Fed Vice Chair Philip Jefferson warned Tuesday that the central bank faces a cooling labor market alongside rising inflation pressures, complicating the policy outlook. “I see the risks to employment as tilted to the downside and risks to inflation to the upside,” Jefferson said in remarks prepared for the fourth International Monetary Policy Conference hosted by the Bank of Finland. “It follows that both sides of our mandate are under pressure.”
The Fed’s Susan Collins and Austan Goolsbee are due to deliver speeches later on Tuesday. Investors will also look at August JOLTS data, which is expected to show weakening demand for labor. “The closer the headline is to estimates, the better, as a too-hot or too-cold print could weigh on already shaky markets amid the government shutdown worries,” said Tom Essaye at The Sevens Report.
The Stoxx 600 drops 0.2%,taking the shine off the best September performance since 2019, as Bloomberg News reported that China moved to ban all iron ore cargoes from BHP Group. The market was led lower by energy names as oil prices fall for a second day – WTI crude futures slip 0.9% to $62.90 a barrel. Here are some of the biggest movers on Tuesday:
Puma gains as much as 6.5% after BNP Paribas Exane upgrades to neutral from underperform and boosts its price target by 40%, saying the sportswear firm is “now in special situation territory.”
Eiffage shares rise as much as 1.6% after the construction firm won a contract worth over €1.5 billion to build substations for French offshore wind farms.
Knorr-Bremse shares rise as much as 2.6% after Hauck & Aufhaeuser upgraded the stock, saying the German firm’s acquisition of Swiss-based Duagon Group complements its train control systems offering.
Valneva shares rise as much as 11.5% after the company reported positive antibody persistence data four years after a single shot of its chikungunya vaccine.
European Luxury stocks fall after China’s factory activity extended its decline into a sixth month, the longest slump since 2019, indicating the country’s economy is at risk of a slowdown.
Hornbach slumps 7.9% after the building materials and garden supplies retailer reported sales for the second quarter that missed the average analyst estimate.
Asos slumps as much as 13% after the fashion retailer warned adjusted Ebitda will be at the lower-end of its guided range this year.
Pandora drops as much as 4.3% following the announcement that CEO Alexander Lacik will retire next year, with RBC calling it “incrementally negative.”
Close Brothers falls as much as 11% as the financial services group downgrades near-term adjusted earnings.
Card Factory slides as much as 6.1% as first-half profit falls.
European wood and forestry companies are underperforming the broader market on Tuesday after US President Donald Trump ordered tariffs on imports of softwood timber and lumber.
Earlier in the session, Asian equities climbed to cap September with their longest monthly winning streak since early 2018, led by gains in Taiwan and Hong Kong stocks. The MSCI Asia Pacific Index rose 0.6% Tuesday, with Alibaba among the top contributors. The regional benchmark gained about 4% in September, recording its sixth consecutive monthly advance. Key benchmarks also traded higher in Japan, mainland China and Singapore. Investors have remained anchored in the region, chasing potential artificial intelligence winners and driving recent tech stock gains. Many are also scouring for China’s homegrown tech developers, amid hopes for an economic revival driven by increased consumption. Hong Kong’s benchmark, up 7% for September, has posted its best month since February, while the key onshore index also climbed for a fifth straight month. The Hong Kong market will be closed Wednesday while mainland bourses will be shut through Oct. 8 for Golden Week holidays.
In FX, yen is leading gains against the dollar for a second day, rising 0.5% and taking USD/JPY below 148 after a weak JGB auction pushed Japanese two-year yields to the highest since 2008. The Aussie dollar is still outperforming after a hawkish hold by the RBA.
In rates, treasuries inch higher, pushing US 10-year yields lower by 1 bp to 4.13%. Bunds ticked lower when German state CPI data showed accelerations across the country’s biggest regions.
In commodities, gold also added to Monday’s surge before swiftly erasing gains and now sits ~$30 lower on the day.
Looking at today’s calendar, data due today include job openings for August and consumer confidence for September. Bloomberg Economist Anna Wong expects to see an improvement in confidence given the continued strength in spending through August. Still, she says sentiment measures have been diverging, with the U Michigan survey reflecting growing concerns about higher inflation and potential labor market weakness. US economic data slate includes July FHFA house price index, S&O Cotality house prices (9am), September MNI Chicago PMI (9:45am), August JOLTS job openings, September consumer confidence (10am) and Dallas Fed services activity (10:30am). Fed speaker slate includes Collins (9am), Goolsbee (1:30pm, 3:30pm) and Logan (7:10pm)
Market Snapshot
S&P 500 mini -0.2%
Nasdaq 100 mini -0.2%
Russell 2000 mini -0.2%
Stoxx Europe 600 -0.1%
DAX little changed
CAC 40 -0.3%
10-year Treasury yield -1 basis point at 4.13%
VIX +0.4 points at 16.55
Bloomberg Dollar Index -0.2% at 1200.18
euro +0.2% at $1.1752
WTI crude -0.9% at $62.88/barrel
Top Overnight News
The US government is set for a shutdown tomorrow, JD Vance said, seeking to pin the blame on Democrats. Senate Minority Leader Chuck Schumer said he wouldn’t support a seven- or ten-day stopgap funding bill. The impasse has raised concerns that data releases, including Friday’s jobs report, may be delayed. BBG
Senate Minority Leader Schumer said he met with President Trump, noting “we have large differences” and adding that the decision to avoid a government shutdown lies with Republicans. Democratic Leader Jefferies said Democrats will not support a partisan Republican bill that hurts healthcare, according to Reuters.
Vice President Vance said he had frank talks with Democratic leadership, adding “you don’t shut government over disagreements,” but said “I think we’re headed to a shutdown because the Democrats won’t do the right thing.”, according to Reuters.
Punchbowl’s Sherman said that from listening to Schumer, Jeffries, and Vance, it does not sound like there was a breakthrough in the meeting, adding that a shutdown is around the corner, via Punchbowl.
House Speaker Johnson said they want to allow more time for negotiations, according to Reuters.
Major airlines warned that a potential government shutdown could strain US aviation and cause flight delays, according to a statement.
Schumer said he would not accept a 7–10 day stopgap bill, according to Reuters.
Trump said the tariff on upholstered furniture will start at 25% and rise to 30% on Jan 1, with kitchen cabinets/bathroom vanities starting at 25% before rising to 50% (although imports from the EU and Japan will be capped at 15%, with the UK ceiling 10%). NYT
Trump’s lumber/timber tariff details aren’t as bad as feared (the rate is only 10%, and payers of that tariff won’t be subject to the “reciprocal” tax). NYT
China’s NBS PMIs for Sept are mixed, with modest upside on manufacturing (49.8 vs. the Street 49.6 and up from 49.3 in Aug) and a small miss on services (50 vs. the Street 50.2 and down from 50.3 in Aug). WSJ
Japan’s factory output fell more than expected while retail sales declined for the first time in over three years in August, government data showed, heightening uncertainties about the economic outlook. Industrial production (-1.2% M/M vs. the Street -0.9%), retail sales (-1.1% M/M vs. the Street +1.2%), and housing starts (-9.8% Y/Y vs. the Street -5.2%). RTRS
Taiwan Premier Cho Jung-tai said trade talks with the US have entered “the crucial closing stages,” indicating the global chip hub is finally nearing a deal with the Trump administration. Taiwan’s trade negotiators arrived in Washington late last week for discussions with their US counterparts aimed at lowering the 20% tariff imposed on the island. BBG
Iron ore advanced after China’s state-run iron ore buyer told major steelmakers and traders in the world’s largest importer to temporarily halt purchases of all new BHP Group cargoes. BBG
The SNB made its most significant sales of the franc in more than three years in the second quarter to stem a surge caused by Trump’s tariff push. BBG
French inflation picked up on an acceleration in the services sector but remained well below the ECB’s 2% target. Consumer prices rose 1.1% in September from a year earlier. BBG
Trade/Tariffs
The White House said US President Trump signed a proclamation adjusting imports of timber, lumber, and related derivatives into the US, imposing a 10% tariff on softwood, timber and lumber imports effective 14 October. It added that Trump intends to cap tariff rates for EU and Japanese wood products at 15%, according to Reuters.
The White House confirmed new 25% tariffs on vanities and kitchen cabinets will take effect on 14 October, with imports of certain upholstered wooden products also subject to a 25% tariff. It announced tariffs on imported cabinets will rise from 25% to 50%, while tariffs on upholstered furniture will increase from 25% to 30% effective 1st January, unless trade agreements are reached beforehand, according to Reuters.
South Korea’s Top Security Adviser Wi said it is challenging to strike a currency swap deal with the US, according to Reuters.
EU Trade Commissioner Sefcovic says the EU and US are “very soon going to propose the post 2026 safeguard measures” on steel, working with tariff-rate quotas, to deal with “global overcapacity”.
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded flat/mixed following a mostly but modestly firmer handover from Wall Street, with focus on the looming US government shutdown and the possibility of delayed NFP data as a result. Meanwhile, the White House announcement of further tariff details overnight capped upside in sentiment. ASX 200 gave up initial mild gains to trade flat as strength across gold miners just about offset hefty losses in energy and a subdued performance in financials, with little move seen in the index after the RBA policy announcement, in which the central bank left rates unchanged as expected in a unanimous decision but struck a hawkish tone, noting inflation risks and that the decline in underlying inflation has slowed. Nikkei 225 narrowly underperformed at the start and briefly fell back under the 45,000 mark with losses led by energy names, while some hawkish undertones from the BoJ Summary of Opinions likely weighed, with some members arguing it may be time to consider another adjustment after more than six months since the last hike, while others cautioned against surprising markets or moving prematurely given uncertainty around the US outlook. Hang Seng and Shanghai Comp varied, the former gave up earlier upside and the latter held onto mild gains with newsflow light ahead of the weeklong break, whilst Chinese PMIs showed manufacturing beat expectations, but services declined from the prior month in both the NBS and RatingDog (formerly Caixin) releases. Furthermore, China’s Securities Journal suggested experts believe the PBoC may flexibly use a variety of monetary policy tools in the future to maintain ample liquidity. KOSPI was subdued with US-South Korean trade talks seemingly at a standstill, with the South Korean national security adviser suggesting it is tough to strike an FX swap deal with the US.
Top Asian News
RBA maintained its Cash Rate at 3.60%, as expected, in a unanimous decision, noting that the decline in underlying inflation has slowed. It said recent data suggest September quarter inflation may be higher than expected in August, though both headline and trimmed mean inflation were within the 2–3% range in Q2. The Bank added that inflation has fallen substantially since the 2022 peak as higher rates have helped bring demand and supply closer to balance. RBA noted that financial conditions have eased since the beginning of the year, and this seems to be having some impact, but it will take some time to see the full effects of earlier cash rate reductions.
RBA Governor Bullock says Board sees risks as broadly balanced; labour market remains solid, still a little tight; economy is in a good spot; need to be a little cautious on inflation; Policy is a little bit restrictive, not expansionary. Could be a couple more rate cuts, could not be. Not giving forward guidance, will have more data in November. Impact of past easing still to come.
BoJ Summary of Opinions noted one member suggested it may be time to consider raising the policy interest rate again, while another said the BoJ gains more information on the US outlook by waiting, and one argued the Bank should maintain accommodative conditions at this point. On the economy, members said US tariffs will still impact Japan even after being reduced to 15%, with growth likely to moderate temporarily. On prices, CPI is expected to rise below 2% in fiscal 2026 as cost-push pressures ease, warranting continued accommodative policy. Some members argued that, given it has been more than six months since the last hike, the Bank should consider raising rates again at regular intervals if activity and prices remain in line with projections. Others noted that constraints from overseas factors have abated, allowing the Bank to return to a stance of raising rates and aligning real interest rates with overseas levels. However, members also stressed that the impact of prior hikes to 0.5% has been limited, and while risks to prices are skewed to the upside, the BoJ should avoid moving rates immediately to restrictive levels, instead gradually shifting closer to neutral to prevent shocks from rapid future hikes.
Experts believe that to maintain ample liquidity, the PBoC may flexibly use a variety of monetary policy tools in the future, according to China’s Securities Journal.
European bourses lower across the board, Euro Stoxx 50 -0.3%; broader market narrative is dictated by the looming US government shutdown. Sectors are mostly lower after a mixed start to the session, just Financial Services & Media remain in the green. Energy hit by ongoing crude softness. Gambling names impacted by late-night comments from Chancellor Reeves. Mining sector underpinned by initial XAU strength.
Top European News
Italy is set to forecast its 2025 budget deficit at or below 3% of GDP, in line with EU rules, according to Reuters, citing sources.
Annual UK shop price inflation rose to 1.4% in September, up from 0.9% in August, according to the latest monthly report from the British Retail Consortium (BRC) and analysts NIQ, via the Guardian.
ECB’s Vice President Guindos says the current level of interest rate is adequate and further decisions will be made meeting by meeting.
SNB’s Schlegel says inflation is expected to rise slightly in the coming quarters. Indicators point to a stable situation and moderate growth. Uncertainty remains high. Pharmaceutical tariffs have raised the downside risk, “a bit”.
FX
DXY is extending on the modest downside seen since last Friday and scaling back some of last week’s data-induced upside. Focus firmly on data, Fed speak and the increasingly likely government shutdown, a shutdown that will impact Friday’s BLS report. DXY briefly slipped below yesterday’s low @ 97.77 with the next downside target coming via the September 25th trough @ 97.37.
EUR fractionally firmer against the USD, peaked just above 1.750 thus far. Modest move on the hotter-than-expected German state CPIs, no reaction to the cooler harmonised French measures. As we count down to the mainland German series, we also await several ECB speakers. Thus far, EUR/USD has ventured as high as 1.1761, taking out yesterday’s best @ 1.1754.
JPY firmer vs USD for the 3rd consecutive session. USD/JPY below the 148.37 200-DMA and looking to the 50-DMA at 147.77. Modest strength on the latest BoJ SOO, as while the document was mixed the undertones were hawkish and signal the BoJ is moving closer to further tightening.
Sterling firmer against the USD, relatively contained vs the EUR. UK drivers light as we await the speech from PM Starmer at the Labour conference, though he is unlikely to add anything new on the fiscal side of things vs Reeves on Monday. Cable is eyeing yesterday’s peak @ 1.3457. If breached, the 50DMA kicks in @ 1.3465.
Antipodeans outperform, initially gaining on a firmer Yuan fixing. Thereafter, extended as the RBA left rates unchanged in a unanimous decision but with the tone hawkish. AUD/USD has made its way back onto a 0.66 handle with a current session peak @ 0.6613. The next target comes via last week’s high @ 0.6628.
PBoC set USD/CNY mid-point at 7.1055 vs exp. 7.1166 (Prev. 7.1089)
Fixed Income
Benchmarks contained overall into a session dominated by US data, with JOLTS and the labour metrics within consumer confidence likely to draw even greater attention than usual owing to the real possibility that Friday’s BLS report is delayed. Thus far, USTs to a 112-22 peak and looking to 112-31+. However, the strength was knocked in the mid-European morning by a move lower in EGBs on German state CPIs.
Bunds initially bid, got to a 128.79 peak with gains of c. 20 ticks. A high that occurred after slightly cooler than expected French preliminary inflation data, following Spain on Monday. However, this was shortlived as Germany’s state CPIs saw a larger increase from the prior than consensus for the mainland implies and sent Bunds from the mentioned peak to a 128.54 trough, lower by six ticks at worst.
Gilts opened on the front foot, got as high as 91.01 with gains of 12 ticks before succumbing to the pullback seen in fixed generally after the German state CPIs. Currently, Gilts reside below opening levels but near enough unchanged vs Monday’s close.
Japan sold JPY 2.7tln in 2-year JGBs; b/c 2.81x (prev. 2.84x); average yield 0.949% (prev. 0.863%); Lowest cover ratio since September 2009.
Commodities
Crude benchmarks continue to sell off following yesterday’s substantial move lower. At worst, benchmarks hit lows of USD 62.45/bbl and USD 66.10/bbl in WTI and Brent respectively.
Newsflow for the space light, as such the move is likely a continuation of the bearishness from Monday which was driven by reports of an increased global oil supply from OPEC+ and the reopening of the Ceyhan pipeline.
Initially, spot gold extended on yesterday’s gains to a new ATH at USD 3871/oz. However, the precious metal has since lost its allure and has found itself under increasing pressure. Down to a USD 3793/oz low. No clear fundamental driver behind the gold pullback this morning, instead it seems to be a function of some profit taking in XAU with a view that the recent move may be a little stretched.
Base metals remain muted throughout the European session, with 3M LME Copper trading in a tight c. USD 100/t range. Copper got to just shy of yesterday’s high, peaking at USD 10.44k/t before falling to a low of USD 10.35k/t and oscillating within these bounds during the European morning.
China bans all BHP (BHP LN) iron ore cargoes as pricing dispute continues, according to Bloomberg citing sources.
Geopolitics
Several sources suggested that there is no certainty that Hamas will accept the deal, according to i24 correspondent Stein. He added that the fact that Arab countries, including Qatar, are supporting it strengthens the chances of acceptance.
Russian President Putin said Russia’s military operation in Ukraine is a righteous battle and asserted that Russia will prevail, according to Reuters.
US Event Calendar
9:00 am: Jul FHFA House Price Index MoM, est. -0.2%, prior -0.2%
9:00 am: Jul S&P Cotality CS 20-City YoY NSA, est. 1.55%, prior 2.14%
9:00 am: Jul S&P Cotality CS U.S. HPI YoY NSA, prior 1.89%
9:45 am: Sep MNI Chicago PMI, est. 43.25, prior 41.5
10:00 am: Aug JOLTS Job Openings, est. 7200k, prior 7181k
10:00 am: Sep Conf. Board Consumer Confidence, est. 96, prior 97.4
Central Bank Speakers
6:00 am: Fed’s Jefferson Gives Keynote Speech
9:00 am: Fed’s Collins Speaks at Council on Foreign Relations
1:30 pm: Fed’s Goolsbee Participates in a Q&A at Midwest Agriculture Co
3:30 pm: Fed’s Goolsbee Speaks on Fox Business
DB’s Jim Reid concludes the overnight wrap
This time tomorrow the US government looks set to be in shutdown unless we have a last-minute deal today. To remind and extend on what we mentioned yesterday, the longest was the 35 days that straddled year end 2018. The median length historically is only 2-3 days, often over weekends, and only a handful have lasted more than a couple of weeks (1978, 1995-96, 2013, 2018-19). Last night’s talks with Democratic leadership at the White House ended with no signs of a deal and with no further talks currently scheduled. Comments by Vice President Vance and reports following the meeting did suggest that the White House was open to bipartisan negotiations over expiring health subsidies which have been a key Democratic demand, but that such talks should take place in the “context of an open government”. In turn, Democratic leaders said they would not accept such uncertain pledges. The Polymarket probability for a shutdown before tomorrow is now 79% and 85% by year-end.
In terms of the impact of a shutdown, Brett Ryan has written “Everything you didn’t want to know…” about it here. It was confirmed by the BLS yesterday that they would suspend operations and not release economic data during a government shutdown. So, no payrolls this Friday if it goes ahead. Indeed, a similar scenario happened back in October 2013, when the jobs report didn’t come out until the 22nd of the month. Moreover, the BLS also publish the monthly CPI data, which is due out on October 15. So, depending how long any shutdown drags on for, it’s even possible that the Fed might not have contemporaneous data going into their next meeting on October 28-29. Given the median shutdown lasts 2-3 days that’s a stretch for now but worth bearing in mind.
A global bond rally (10yr USTs -3.6bps) was the main market story yesterday, helped by WTI crude oil (-3.45%) seeing its largest single day decline since June. Equities posted small advances overall, with the S&P 500 (+0.26%) closing less than half a percent from last week’s record high. There were several factors behind the moves, but a key driver was that sharp decline in oil prices after signals that the OPEC+ group may raise production again at their meeting next week. This helped reignite hopes of deeper rate cuts and drove a decent day for most asset classes, as US IG credit spreads (-1bps) fell back to within 1bp of their post-1998 lows while gold prices (+1.96%) again hit a new record of $3,834/oz. Overnight, gold prices are an additional +0.83% higher on further shutdown talk.
Drilling in, US Treasuries rallied across the curve, with the 2yr yield (-2.2bps) falling back to 3.62%, whilst the 10yr and 30yr yield declined by -3.6bps and -4.5bps to 4.14% and 4.70%, respectively. Markets also priced in a slightly more dovish rate path, with the amount of cuts priced by June 2026 up +1.9bps on the day to 81bps. The moves were helped by the latest decline in oil prices, which helped to counteract inflation fears from Trump’s latest tariff announcements. He said he’d impose “a 100% Tariff on any and all movies that are made outside of the United States”, as well as “substantial Tariffs on any Country that does not make its furniture in the United States.” And last night, Trump’s order confirmed 10% tariffs on lumber, as well as 25% levies on kitchen cabinets, vanities and upholstered furniture. Whilst the moves likely won’t have a big impact on inflation on their own, it’s feeding the concern that the tariffs are far from over, particularly given there are still outstanding reviews into sectors like semiconductors and critical minerals.
As all this was going on, US equities put in a decent performance, led by more cyclical sectors. Tech stocks outperformed with the NASDAQ (+0.48%) and the Magnificent 7 (+0.37%) outpacing the S&P 500 (+0.26%). But it was a broad-based advance overall with the equal-weighted S&P up by +0.32%. Construction materials (+1.24%) were one of the best performing subsectors as pending home sales for August rose +4.0% to their highest in five months, in a sign that the move lower in rates is helping housing activity recover from anemic levels.
European markets followed a similar pattern yesterday, with bonds and equities both advancing. As in the US, sentiment was boosted by the fall in oil prices, which helped to dampen fears about inflationary pressures. So yields on 10yr bunds (-3.8bps), OATs (-3.7bps) and BTPs (-4.8bps) all moved lower. And the start of the flash CPI prints were also in line with expectations, with Spanish inflation at +3.0% in September. So there wasn’t much cause for alarm there either, although we’ll get a broader picture today as the German, French and Italian prints come out. Then on the equity side, the STOXX 600 (+0.18%) moved up to a two-week high, and the FTSE 100 (+0.16%) reached a five-week high.
In geopolitical news, Trump and Israel’s Prime Minister Netanyahu said they had agreed a 20-point plan aimed at ending the war in Gaza. Several countries in the region, including Saudia Arabia, UAE and Turkiye issued a statement welcoming the proposals. However, it is rather uncertain whether Hamas will accept the plan, with one of its conditions being that Hamas would have no future role in running Gaza. Still, regional assets gained on the news, with the Israeli shekel (+1.76% against the dollar) being the best performing major currency on the day.
Asian equity markets are fairly quiet this morning after mixed business activity reports from China. As I check my screens, the Shanghai Composite (+0.37%) and the CSI (+0.11%) are slightly higher. The KOSPI (+0.04%), Nikkei (-0.05%), Hang Seng (-0.02%) and the S&P/ASX 200 (-0.05%) are pretty flat along with US equity futures. The RBA have just left rates unanimously unchanged as expected. At first glance the statement is very slightly hawkish with several mentions of upside inflation risk but we’ll wait for the presser for more.
Coming back to China, official manufacturing activity contracted for the sixth consecutive month in September, while the service sector also experienced a decline. However, a separate private PMI survey indicated that both manufacturing and services activities expanded significantly more than anticipated in September. The official manufacturing PMI printed at 49.8 in September, which was marginally above the expected figure of 49.6, compared to the previous month’s reading of 49.4. It was the highest since March. The non-manufacturing PMI, encompassing services and construction, decreased to 50.0 from 50.3 in August (50.2 expected). Conversely, the RatingDog services PMI recorded a value of 52.9 for September, exceeding expectations of 52.3 but slightly lower than the previous month’s print of 53.0. Elsewhere the BoJ summary of opinions out this morning leans a touch hawkish with no real pushback against the need for rate hikes going forward.
To the day ahead now, and US data releases include the Conference Board’s consumer confidence for September, and the JOLTS report of job openings for August. Over in Europe, there’s the September flash CPI prints from Germany, France and Italy, as well as German unemployment for September. From central banks, we’ll hear from ECB President Lagarde, the ECB’s Cipollone and Nagel, Fed Vice Chair Jefferson, the Fed’s Colins, Goolsbee and Logan, and the BoE’s Lombardelli, Mann and Breeden.
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