US Market Wrap: Oil prices drop, stocks mixed as Trump says US-Iran meeting was very productive

• SNAPSHOT: Equities mixed, Treasuries flat, Crude down, Dollar up, Gold up
• REAR VIEW: US President Trump says US officials met with the Iranian delegation, meeting went well, another meeting scheduled in near future, prefers to make a deal; Most Iranian sources reportedly say position hasn't changed after meeting with the US; Iranian sources reject reports that it said it will open the Strait of Hormuz within seven days if the US lifts its blockade on Iranian ports; Saudi Arabia restarts the East-West oil pipeline; Trump is examining a ban on diesel exports; Average US 2yr note auction; Fed's Collins sees another rate hike this year, hold through 2027; GS in talks to buy $37B Palmer Square.
• COMING UP: Data: Global S&P PMIs Flash (Sep). Events: SARB Policy Announcement UN Meetings: Trump-Sharif meeting; Senior Iranian leaders-GCC meeting; Iranian President Pezeshkian address. Speakers: ECB's Vujcic, Cipollone, Lane; Fed's Barr. Supply: Australia, Germany, US.

MARKET WRAP

US stocks closed mixed on Tuesday, with NDX outperforming amid gains in semiconductors and memory names. Materials were the best-performing sector, followed by staples and healthcare; meanwhile, financials and energy lagged, which weighed on the SPX's performance.

Energy traded lower, weighed by the continued downward pressure in crude prices as market optimism builds on a diplomatic solution between the US and Iran, which would bring increased energy supply with it. Trump noted that US officials met with the Iranian delegation, in what was a "very productive" meeting, with his preference for a deal. However, he threatened Pickaxe Mountain with strikes if the US sees activity taking place there. In response, Al Jazeera reported that Iran's position has not changed. Earlier reports, citing Iranian sources, noted the removal of military threats is a condition to resume talks. Additionally, Iranian sources downplayed reports from Kyodo and Reuters that Iran was willing to reopen the Strait of Hormuz if the US lifted its blockade. Elsewhere in energy, Trump said they are examining a diesel export ban, a move that would follow growing pressure from officials within Congress to prioritise domestic needs.

Despite lower crude prices, US yields were little changed as money markets stay aligned with the Fed on one further 25bps rate hike in 2026. 2028 Fed voter Collins sees rates on hold through 2027; meanwhile, 2027 voter Barkin said last week's hike will help restore price stability, although he said “we'll see” if further hikes are needed.

In FX, the dollar was able to strengthen further on choppy US yields, whilst NZD saw some modest outperformance following remarks from Governor Breman overnight. Precious metals rallied on the broader risk-on sentiment.

FED

BARKIN (2027 voter): Said US economic conditions may be firming, and inflation risks outweigh employment risks. He supported last week’s 25bps rate hike to 3.75-4.00%, saying inflation pressures extend beyond energy and tariffs, and that the hike will help to restore price stability. He added that further hikes may be required, but did not specify how many. On the economy, Barkin said it is firming rather than weakening, though he would not yet call it overheating; he does not see much evidence that consumer balance sheets are stretched, adding that they will spend as long as the job market remains healthy.

COLLINS (2028 voter): Said she supported last week’s rate hike because inflation remained too high and renewed Iran-war fighting risked further energy pressures. She said inflation could remain notably above 2% and a somewhat more restrictive rate would help restore price stability. Speaking overnight, Collins said that she has pencilled in another hike this year, but expects rates to be unchanged in 2027.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 1+ TICKS LOWER AT 106-00

Yields little changed despite drop in oil prices as eyes turn to next buyback announcement and auctions. At settlement, 2-year +0.2bps at 4.753%, 3-year +1.3bps at 4.826%, 5-year +1.7bps at 4.844%, 7-year +1.5bps at 4.901%, 10-year +1.6bps at 4.967%, 20-year +1.8bps at 5.343%, 30-year +2.3bps at 5.303%.

THE DAY: Yields were little changed across the curve on Tuesday despite tumbling oil prices amid hopes for diplomacy between the US and Iran. Several reports and comments from officials, including US President Trump, suggested that communications between the US and Iran occurred today, helping pressure oil prices.

The reports of potential diplomacy hit during the European morning and helped yields move off their highs back towards unchanged, before Treasuries meandered throughout the remainder of the session. There was little fresh economic data to digest, although there was plenty of Fed speak.

Collins said she supported last week's rate hike and sees an increased likelihood of scenarios in which inflation remains notably above 2%, noting that upside risks to inflation have increased while the labour market is on a better footing. Barkin similarly said the Fed hiked last week because risks to inflation outweigh risks to maximum employment, noting the hike will help restore price stability, although he said “we'll see” if further hikes are needed. Barkin added that he likes to think this period will be more akin to the 1990s mid-cycle adjustment. Williams did not comment on monetary policy but spoke on reserves, noting there should be no opportunity cost to holding reserves and that the Fed will adjust the supply of reserves depending on market conditions.

Meanwhile, the 2-year auction was mixed. The small tail and sharp decline in indirect participation took some shine off the auction, particularly given the substantially higher outright yield on offer. However, the above-average bid-to-cover, strong direct participation and broadly average dealer allocation suggested underlying demand was still healthy, leaving the auction broadly in line with recent averages.

Attention remains on developing geopolitics this week, while Treasury traders will also be eyeing the upcoming 5- and 7-year auctions and Wednesday's announcement for Thursday's Treasury buyback operation in the 20-30yr sector.

Supply

US to sell USD 70bln of 5yr notes on September 23rd, and USD 44bln of 7yr notes on September 24th; all to settle September 30th. US to sell USD 28bln of 2yr FRNs on September 23rd, to settle September 25th.

Bills

• US to sell USD 90bln of 4-week bills and USD 84bln of 8-week bills on Sept 24th; USD 72bln of 17-week bills on Sept 23rd; atll to settle Sept 29th
• US sold 6-week bills at high rate 3.87%, B/C 3.03x

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 13.3bps (prev. 13.9bps), Dec 33bps (prev. 33bps).
• EFFR at 3.88% (prev. 3.88%), volumes at USD 95bln (prev. USD 96bln) on September 21st
• SOFR at 3.85% (prev. 3.85%), volumes at USD 2.912tln (prev. USD 2.955tln) on September 21st
• NY Fed RRP op demand at 0.45bln (prev. 0.58bln) across 8 counterparties (prev. 15) on September 22nd

CRUDE

WTI (X6) SETTLED USD 1.85 LOWER AT 90.52/BBL; BRENT (Z6) SETTLED USD 0.83 LOWER AT 95.41/BBL

Crude prices fell amid hopes for US/Iran diplomacy and signs of supply returning. Reports suggested a senior Iranian official said Tehran welcomes a revival of diplomacy if the US takes steps, while separate reports suggested Iran could reopen the Strait within seven days if the US eases military pressure and lifts the blockade. Also adding to the downside were reports that Saudi Arabia has restarted the East-West oil pipeline and is preparing to resume crude exports from Yanbu later today.

WTI and Brent hit lows of USD 89.16 and 93.71/bbl respectively, before gradually paring losses after Iranian press pushed back on the earlier source reports regarding the reopening of the Strait of Hormuz in exchange for easing US military pressure and lifting the blockade. Al Jazeera later reported that Iran would only consider engaging in talks with the US if Washington fulfils commitments pertaining to its conditions and provides guarantees. A source said Iran's conditions for resuming talks include “an end to the war on all fronts”, negotiations on a timeline for a full Israeli withdrawal from southern Lebanon, the release of frozen funds, lifting of the naval blockade and newly imposed sanctions, an end to military threats, and an oil waiver.

Nonetheless, there were multiple reports of ongoing diplomatic efforts by mediators. ILNA reported that Qatar and Pakistan have entered mediation between the US and Iran, while Iran reportedly asked China to take a greater role in bringing the US and Iran to the negotiating table.

US President Trump is also expected to hold a meeting today with representatives from nine Arab nations to discuss Iran. Trump later said he thinks a settlement will be reached with Iran, noting that some communications between the two countries occurred today and that the relationship is developing. Trump also reportedly told advisers he would like to meet Iranian officials if conditions are right.

Crude prices moved lower once again in the afternoon after US President Trump announced that US officials met with an Iranian delegation for three hours in a meeting that was described as productive and went well, while another meeting is scheduled in the near future. Meanwhile, diesel futures ticked lower after Trump spoke on a ban on diesel exports, saying he has called for it; currently examining it.

ENERGY UPDATES

• Libya's National Oil Corporation said the shutdown of the Sharara-Zawiya crude pipeline has cut production by around 130k BPD and warned losses will rise if the shutdown persists.
• Saudi Aramco has reportedly told Asian refiners they will soon be able to pick up oil from Yanbu, according to Bloomberg sources.
• Javier Blas highlighted new satellite imagery showing Saudi Arabia's Ju'aymah oil terminal quite busy again, with six supertankers loading crude and another at Ras Tanura.
• The US is discussing a USD 10bln joint investment fund with Arab states to repair energy and other infrastructure damaged during the Iran war, according to the FT.

EQUITIES

CLOSES: SPX +0.00% at 7,765, NDX +0.82% at 30,732, DJI -0.36% at 51,869, RUT +0.51% at 2,890

SECTORS: Financials -1.98%, Energy -1.01%, Communication services -1.01%, Utilities -0.29%, Consumer discretionary flat, Real estate flat, Industrials +0.19%, Health +0.54%, Technology +0.63%, Consumer staples +1.2%, Materials +1.9%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.08% at 6,323, Dax 40 +0.10% at 25,600, FTSE 100 -0.29% at 10,708, CAC 40 +0.20% at 8,155, FTSE MIB -0.53% at 52,096, IBEX 35 +0.15% at 19,754, PSI +0.41% at 9,657, SMI -0.02% at 13,953, AEX +0.78% at 1,111.

STOCK SPECIFICS

• Alibaba Group (BABA): Unveiled Zhenwu V900 chip, which it says is the most powerful in China, with three times the performance of its predecessor.
• Viking Therapeutics (VKTX): VK2735 showed positive weight maintenance and favourable tolerability in a 12-week maintenance study.
• Vicor Corporation (VICR): Raised Q3 sequential growth guidance to more than 20% from nearly 10%.
• Circle Internet Group (CRCL): Entered an expanded strategic partnership with Binance.
• On Holding (ONON): Targets high-teens constant-currency sales growth through 2029; authorised first share buyback of up to USD 1bln.
• Valero Energy (VLO) / Marathon Petroleum (MPC): Downgraded at Jefferies to 'Hold' from 'Buy'.
• Ericsson (ERIC): Downgraded at Morgan Stanley to 'Underweight' from 'Equal Weight'.
• GameStop (GME): CEO Ryan Cohen acquired 1.15mln shares on September 21st at USD 22.9375/shr.
• Grab Holdings (GRAB): CEO Anthony Tan purchased 10.4mln shares on September 21st for USD 29.9mln.
• Salesforce (CRM): Director David Kirk purchased 4,176 shares on September 18th for a total of USD 999.5k.
• Meta's (META) Muse surpassed 500k users after the first week; users have also submitted over 2mln prompts, reports The Information. Meanwhile, Meta's Muse could be a big win for Innodata (INOD), Hunterbrook argued.
• Royal Caribbean (RCL) nears deal for Sandals valuing resorts at more than USD 6bln, FT reports.
• Goldman Sachs (GS) reportedly in talks to buy USD 37bln credit firm Palmer Square, according to reports.

FX

USD strength carried over through Tuesday as rate hike expectations held despite the continued downward pressure in energy prices. Fedspeak was seen from 2027 voter Barkin and 2028 voter Collins, both expressing support for last week's rate hike. Collins described the FFR as somewhat restrictive, whilst Barkin noted that there is momentum outside data centres and AI, with consumer spending holding up and strength in defence and manufacturing.

Outside of Fed speak, the focus was on the UNGA, in which Trump met with several leaders. The highlight came via Trump noting US officials met with the Iranian delegation, describing the meeting as very productive, adding he would prefer to make a deal. Meanwhile, earlier Kyodo reports noted that Iranian officials said Iran could reopen the Strait in seven days, once the US ends its blockade (later corroborated by a Reuters source). Later, Iranian sources via Fars rejected the reports. DXY hit highs of 100.70 before trimming to around 100.58.

CAD, GBP, and EUR, JPY, and AUD all traded mostly lower vs the buck. Meanwhile, NZD saw modest strength; RBNZ Governor Breman said persistently higher oil prices would lift near-term inflation above September assumptions, adding that the bank will assess incoming data and global developments before its October decision, while significant risks remain and the economic recovery is continuing but uneven. Currency-specific newsflow was light outside of geopolitical/energy developments. Attention will look towards the Trump and Xi meeting on Thursday, alongside rate decisions from the SNB, Norges Bank, and Riksbank.