US Market Wrap: Markets chop to Fed speak, data, geopolitics, and diesel on first day of Q4

• SNAPSHOT: Equities up, Treasuries up, Crude up, Dollar up, Gold up
• REAR VIEW: ISM headline falls short of expectations, prices and employment rise; US jobless claims remain sub 200k; Pentagon reportedly sending more troops, carriers, and ships to the Middle East, with Trump telling aides strikes on Iran will resume in November; Fed's Jefferson said may take more time before deciding on next move; Fed's Bowman sees no urgent need for more rate moves in 2026; The US has reportedly told France and Germany to release emergency diesel stocks or face a possible export ban; EU Energy Union Taskforce reportedly to meet on Friday to discuss potential diesel stock releases; Chinese refiners reportedly suspend fuel product exports beyond Hong Kong and Macau; MU earnings smash expectations; GOOGL announces Gemini 4 Argon
• COMING UP: Data: Japanese Tokyo CPI (Sep), EZ HICP (Sep), US NFP (Sep). Speakers: ECB’s Vujcic; Fed's Logan. Supply: Australia. Credit Ratings: Scope on the US.

Stocks closed with marginal gains on Thursday, with the Nasdaq outperforming as Technology led, supported by software names following strong Accenture (ACN) earnings, while Synopsys (SNPS) also gained after raising guidance following its deal with OpenAI.

Treasuries were choppy, but ultimately bull steepened, with front-end yields leading the rally. Trade was influenced by economic data, Fed speak, and geopolitics as markets entered Q4. T-notes peaked after comments from Fed Vice Chair Jefferson, who echoed the sentiment from Williams that the Fed may take more time before deciding its next rate move, further reducing expectations for an October hike. A hike is now priced at 24% vs nearly 70% last week.

Economic data was generally solid, with jobless claims remaining low, the Revelio Labs labour market report showing an acceleration in September, while the Chicago Fed unemployment nowcast was unchanged at 4.1% — all eyes now turn to Friday's NFP report. Meanwhile, ISM Manufacturing PMI missed expectations, although prices paid jumped and the employment component improved.

Crude prices rallied amid a lack of progress between the US and Iran, with sharp upside seen ahead of settlement as WSJ reported the US is sending up to 10k troops, ships and aircraft carriers to the Middle East, while Trump reportedly told aides he will resume strikes in November after the midterms. Diesel supply concerns also remain in focus, with the US urging Europe to release stockpiles and European energy officials set to meet on Friday to discuss options. Meanwhile, Chinese refiners have reportedly halted refined-product exports beyond Hong Kong and Macau, adding to supply concerns.

In FX, the Franc outperformed as global yields gave back recent gains, while there may also have been an element of European haven demand amid ongoing diesel concerns. The Euro tumbled, with pressure on the single currency potentially compounded by French fiscal concerns following its latest budget presentation.

KASHKARI: Minneapolis Fed President Kashkari said he has been surprised by the resilience of the economy and reiterated that the Fed will do what is needed to return inflation to target, although he does not know how high rates will need to go. He warned the Fed must pay attention to the inflation risk premium, describing it as a “cousin” of inflation expectations and noting that a large premium could be concerning. Kashkari doesn't have a strong view about an October rate hike, being open-minded about how fast the Fed should hike rates. He pencilled in one more rate hike this year and more in 2027.

On the economy, Kashkari said growth is broadly strong, despite pockets of weakness such as housing. The consumer remains strong and the labour market broadly healthy, with 4.1% unemployment a good level, while he stressed that labour-market pain is not required to achieve the Fed's goals. He added that the economy is “not just an AI economy”, while further rate hikes would put varying degrees of pressure on different parts of the economy.

Regarding contacts, Kashkari said he is not hearing much concern about interest rates but is hearing a lot about inflation. He said the Fed should not react to one-time shocks, but if there is a series of shocks over five years, it should respond. Kashkari also described the atmosphere under Warsh's leadership as remarkably consistent.

ISM MANUFACTURING: ISM Manufacturing dipped to 54.5 from 54.6, shy of the expected 55. The inflationary gauge of prices paid jumped to 77.9 from 71.1, well above Wall St. consensus of 72.3. New orders and employment lifted to 55.3 (prev. 53.7) and 52.7 (prev. 51.2), respectively. Inventories fell beneath 50, while supplier deliveries was more-or-less unchanged at 59.0 (prev. 59.3). Backlog of orders jumped to 56.4 from 51.8, while both new export orders and imports dipped, but remained in expansionary territory. Overall, higher oil prices are pushing input costs sharply higher, with the prices index approaching levels last seen in the early months of the US/Israel-Iran war. Oxford Economics notes, combined with slowing supplier deliveries, manufacturers will face building price pressures in the near term. Ahead, the consultancy adds that the expansion in the manufacturing sector faces key downside risks as higher interest rates and energy prices risk delaying spending by businesses and households on durable goods.

T-NOTE FUTURES (Z6) SETTLED 14+ TICKS HIGHER AT 104-21+

A choppy session for Treasuries amid mixed data, Fed speak and geopolitics as we enter Q4. At settlement, 2-year -10.6bps at 4.787%, 3-year -9.6bps at 4.904%, 5-year -7.9bps at 5.009%, 7-year -6.7bps at 5.124%, 10-year -5.0bps at 5.239%, 20-year -2.7bps at 5.648%, 30-year -2.5bps at 5.606%.

THE DAY: Treasuries were pressured in the morning and hit lows during the European session, perhaps partly on reports that Chinese refiners have suspended fuel-product exports beyond Hong Kong and Macau, adding to concerns around global diesel supplies, particularly with the US considering measures to keep more diesel within the country.

T-notes then gradually pared losses around US economic data, where initial jobless claims remained below 200k, and continuing claims fell further. The Revelio Labs labour market report beat expectations, while the final Chicago Fed unemployment rate forecast was unchanged at 4.1%. Attention then turned to ISM Manufacturing PMI, which slipped slightly to 54.5 from 54.6, missing the 55.0 forecast. However, prices jumped to 77.9 from 72.3, while employment improved to 52.7 from 51.2. The strong prices and labour components prompted a brief hawkish reaction, with T-notes coming under modest pressure across the curve.

The move was short-lived, however, with T-notes rallying throughout the US afternoon and the curve ultimately bull steepening, as front-end yields fell around 10bps while the 30-year yield declined just 2.5bps. There was no clear catalyst for the move, although positioning may have played a role on the first day of Q4, with yields unwinding some of the sharp rise seen throughout Q3. There may also have been an element of haven demand, with the Franc surging in FX markets while the Euro tumbled. Concerns around diesel supplies remained in focus following the aforementioned reports on Chinese refined-product exports, while the US is reportedly pushing Europe to release diesel stockpiles. However, the extent to which this drove the broader cross-asset moves was unclear.

T-notes then took another leg higher to session peaks as Fed Vice Chair Jefferson echoed a similar argument to FOMC Vice Chair Williams that the Fed may take more time before deciding its next rate move, further dampening expectations for an October hike. Money markets now assign just a 24% probability of a 25bps hike in October, versus nearly 70% last week.

Supply

Notes

• US to sell USD 39bln 10yr notes on October 7th; to sell USD 58bln 3yr notes on October 6th; to sell USD 22bln 30 year bonds on October 8th; all to settle on October 15th

Bills

• US sold 4-week bills at a high rate of 3.890%, B/C 2.83x; sold 8-week bills at 3.990%, B/C 2.70x
• US to sell USD 95bln 13-week bills and USD 82bln 26-week bills on October 5th; to sell USD 95bln of 6-week bills on October 6th; all to settle on October 8th

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 6bps (prev. 9.8bps), Dec 24.8bps (prev. 30.6bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 83bln (prev. USD 111bln) on September 30th
• SOFR at 3.90% (prev. 3.88%), volumes at USD 3.23tln (prev. USD 2.967tln) on September 30th
• NNY Fed RRP op demand at 0.35bln (prev. 11.54bln) across 1 counterparty (prev. 18) on October 1st
• Treasury Buyback [10-20year, liquidity support, max USD 6bln]: Accepts USD 6bln of 46.39bln offers, accepting 2 of 41 eligible securities. Offer to cover: 7.73x.

WTI (X6) SETTLED USD 2.45 HIGHER AT 92.87/BBL; BRENT (Z6) SETTLED USD 4.28 HIGHER AT USD 102.31/BBL

Crude prices moved higher as further progress between US and Iran remains to be seen, leaving markets dialling up the geopolitical risk premium. The big driver came ahead of settlement, in which the WSJ reported that the US is sending up to 10k troops, ships, and aircraft carriers to the Middle East, with Trump reportedly telling aides he will strike Iran in November. The report sent WTI and Brent to fresh highs of USD 93.68 and USD 103.05/bbl, respectively. Earlier, it was reported that a US official said the Secretary of State Rubio demanded on Monday that Iran's delegation to the UN General Assembly immediately leave the country after negotiations stalled. The main energy developments that added upward pressure were Chinese refiners reportedly suspending fuel product exports beyond Hong Kong and Macau. Additionally, the US has been pressuring the EU (France and Germany) to release emergency diesel reserves or face an export ban. Now, the EU Energy Union task force is reportedly meeting on Friday to discuss a potential diesel stock release, an update that sparked energy prices to pull back from highs at the time.

Energy updates

• Brazil's Petrobras (PBR) raises jet fuel prices by roughly 11.8% at main refineries from today
• Venezuela's oil exports down to 1.08mln BPD bpd in September; exports to US increased to 629k BPD and exports to India and Europe fell to 253k BPD and 86k BPD, respectively
• Crude flows through Saudi Arabia's East-West pipeline have recovered to around 5.5mln BPD, according to Argus citing a source

CLOSES: SPX +0.19% at 7,666, NDX +0.31% at 30,502, DJI +0.04% at 50,932, RUT +0.35% at 2,807

SECTORS: Health -1.3%, Communication services -1.19%, Real estate -0.62%, Materials -0.45%, Consumer staples -0.29%, Consumer discretionary -0.15%, Financials +0.16%, Utilities +0.61%, Technology +0.76%, Industrials +1%, Energy +1.92%.

EUROPEAN CLOSES: Euro Stoxx 50 -1.48% at 6,177, Dax 40 -0.87% at 24,981, FTSE 100 -1.68% at 10,428, CAC 40 -1.62% at 7,835, FTSE MIB -2.21% at 50,238, IBEX 35 -2.17% at 19,005, PSI -1.97% at 9,477, SMI -1.48% at 13,625, AEX -1.10% at 1,103

STOCK SPECIFICS

• Micron Technology (MU): Choppy post-earnings; as expected, strong quarterly results and guidance underscored robust AI-driven memory demand, although next-quarter gross margin guidance missed.
• Synopsys (SNPS): Lifted FY27 outlook.
• Alphabet (GOOGL): Unveiled Gemini 4 Argon.
• Constellation Energy (CEG): Amazon announces 20-year power purchase agreement.
• McCormick & Company (MKC): EPS and revenue beat.
• Accenture (ACN): Top and bottom line surpassed expectations, with stellar FY profit outlook.
• Members of SPEEA union’s Professional and Technical bargaining units have both ratified four-year contract offers from Boeing (BA).

USD was largely firmer against peers in what was a haven trade across FX and fixed. The key FX beneficiaries were the USD and CHF, whilst the JPY lagged amid a weaker-than-expected Tankan survey, and a less hawkish-than-expected BoJ SOO. The sharp reversal in yields post-hot ISM was largely ignored in the FX space, as yields gave back notable gains seen in Q3 to start Q4. The ISM headline missed; however, the closely watched Prices component jumped to 77.9 from 71.1, albeit still shy of the 84.6 seen in April, in which WTI was stuck around the USD 100/bbl level.

Multiple Fed speakers were on the calendar. The market reacted towards Fed's Jefferson (voter) echoing Vice Chair Williams remarks on Tuesday. Jefferson said they may take more time to decide the next rate move, giving more time to weigh data that will allow the Fed to make a better call on rates. The pullback in US 2yr yields and Jefferson remarks have seen odds of a Fed October rate hike diminish further, now priced at 24% (prev. 70% last week).

On the labour market, initial claims were little changed W/W, while Challenger layoffs eased slightly in September, as Tech led job cuts with AI remaining the common citation. DXY made new YTD highs of 102.207

EUR saw notable underperformance, a large part due to the CHF strength. Fundamental drivers may have been the floated diesel export ban from the US on France and Germany if they do not release strategic reserves. On Friday, the EU Energy Union taskforce is reportedly meeting on Friday to discuss a potential diesel stock release.

In France, PM Lecornu reportedly aims for EUR 43bln in new savings in the budget. The deficit is seen falling to 5% of GDP by 2027, well above the EU’s deficit-to-GDP ceiling of 3%. This raises three key concerns: a) Will the EU impose fines/sanctions, b) potential use of Article 49.3 – raising political uncertainty, c) French sovereign debt credit rating downgrades. EUR/USD is back to May 2025 levels of 1.1241