US MARKET WRAP: Stocks chop ahead of CPI; oil gains on lack of US-Iran progress

• SNAPSHOT: Equities mixed, Treasuries up, Crude up, Dollar flat, Gold down
• REAR VIEW:  Pakistani Defence Minister reportedly signals the US and Iran are close to some agreement; US forces fire on a Panama-flagged ship that attempted to run the American blockade of Iranian ports; Saudi ship targeted by Houthis; Iranian advisor said Hormuz will not reopen until Iran's conditions are met; RBA holds rates as expected, will raise rates again if needed
• COMING UP: Data: German/Italian Inflation Final (Jul), US Inflation (Jul). Events: IEA OMR, OPEC MOMR. Supply: Australia, Japan, UK, Germany, US.

MARKET WRAP

US indices ended the day with a downside bias, although the Russell 2000 outperformed and saw gains. Sectors were also mixed as Utilities and Energy sat atop of the pile, with the latter supported by rising oil prices, albeit in very choppy trade. Ultimately, the energy space was buoyed after reports that a Saudi ship was targeted near Bab al-Mandab by Yemen's Houthis. Back to sectors, Communication Services and Consumer Discretionary were the laggards, as the former was hit by Alphabet weakness. Overall on Tuesday, newsflow, aside from geopolitics, was sparse as desks await US CPI on Wednesday, which will be key in shaping expectations for the September FOMC meeting. The weak July NFP report prompted participants to pare rate hike expectations, although the subsequent rebound in crude prices has helped push September pricing back towards a coin toss. The Dollar was little changed against G10 peers, with the Loonie and Aussie both eking out slight gains vs. the Greenback. CAD was supported by oil prices, and AUD by a hawkish tilt from the RBA Governor after the central bank kept rates unchanged at 4.35%, as expected. Treasuries meandered and saw little reaction post 3-yr auction, while precious metals were in the red with spot silver noticing greater losses.

US

EXISTING HOME SALES: Existing Home Sales fell 1.7% in July to 4.06mln, marginally above the 4.05mln forecast. Meanwhile, the inventory of homes for sale was unchanged at 4.6 months' worth. NAR Chief Economist Lawrence Yun stated that “Home sales have been remarkably stable, even amid the rising mortgage rate environment of the past few months,”. Yun noted that “Year-to-date sales are up 2.4% and there’s no doubt that the housing market would be thriving if average mortgage rates were to return near 6%.” However, Pantheon Macroeconomics notes the further dip leaves them in the middle of the depressed range it's been stuck in for three years. The consultancy highlights that "Near-term leading indicators provide no sign that sales are likely to pick up in the months ahead, with mortgage purchase applications grinding lower and mortgage rates following long-dated Treasury yields higher."

FIXED INCOME

T-NOTE FUTURES (U6) SETTLED 3+ TICKS HIGHER AT 108-15+

T-notes meander ahead of CPI. At settlement, , 2-year -2.3bps at 4.220%, 3-year -2.3bps at 4.288%, 5-year -2.1bps at 4.389%, 7-year -2.2bps at 4.532%, 10-year -2.1bps at 4.684%, 20-year -2.0bps at 5.242%, 30-year -1.5bps at 5.235%.

THE DAY: Treasuries saw modest gains on Tuesday despite a further rise in oil prices, with participants largely looking ahead to Wednesday's US CPI report. A hotter-than-expected core CPI print would likely revive expectations for a September rate hike, particularly given recent hawkish Fed commentary and renewed upside in energy prices. Conversely, another soft core reading would strengthen the case for patience following the deterioration in payrolls and could see markets more decisively price out a September move.

Oil prices advanced following several incidents around the Bab al-Mandab Strait, Gulf of Oman and southern Red Sea, keeping energy-driven inflation concerns elevated. However, gains were capped after Pakistan's Defence Minister suggested the US and Iran are close to reaching some form of agreement, providing some optimism around the geopolitical backdrop.

Fed speak had little impact on price action. Goolsbee said labour market indicators point to stability rather than strong performance, but stressed that inflation remains the Fed's biggest problem. Meanwhile, Atlanta Fed interim President Venable said inflation remains too high, while describing the labour market as broadly stable.

Economic data also had little impact, with attention firmly on Wednesday's CPI report. Existing Home Sales declined, while household debt fell by USD 13bln in Q2 to USD 18.8tln.

The 3-year auction was stronger than average, but not as strong as the previous, also resulting in little reaction.

Overall, Tuesday's modest Treasury gains despite firmer crude suggest positioning ahead of CPI was the dominant influence on rates. The inflation report will be particularly important for the front end, with September currently finely balanced between a hold and a hike.

SUPPLY

Notes/Bonds

• US sold USD 48bln of 3-yr notes.
• US to sell USD 42bln of 10yr notes on 12th August, and USD 25bln of 30yr on August 13th; all settling on August 17th

Bills

• US sold 6-week bills at a high rate of 3.670%, B/C 2.93x
• US to sell USD 72bln of 17-wk bills on August 12th; to sell USD 110bln of 4-wk bills and USD 100bln 8-wk bills on August 13th; all to settle August 18th

STIRS / OPERATIONS

• Fed Hike Pricing via CME Fed Watch: Sept 12.5bps (prev. 12.9bps), Dec 29.5bps (prev 31.6bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 108bln (prev. USD 117bln) on August 10th
• SOFR at 3.63% (prev. 3.62%), volumes at USD 2.964tln (prev. USD 2.977tln) on August 10th
• NY Fed RRP op demand at 1.250bln (prev. 0.975bln) across 2 counterparties (prev. 2) on August 11th

CRUDE

WTI (U6) SETTLED USD 1.07 HIGHER AT 83.20/BBL; BRENT (V6) SETTLED USD 1.19 HIGHER AT 88.91/BBL

The crude complex ended the day with gains, albeit in which was a choppy session as Middle East headlines dominated the tape in an otherwise quiet day. Initially, upside was seen after reports that a Saudi ship was targeted near Bab al-Mandab by Yemen's Houthis. This saw WTI and Brent hit peaks of USD 84.61-/bbl and 90.03/bbl, respectively, before a few more constructive reports saw oil pare all gains; Qatar's Foreign Ministry Spokesperson remarked that negotiations between Oman and Iran are in an advanced stage, while Pakistani Defence Minister reportedly signalled the US and Iran are close to some agreement and the situation is moving towards peace. WTI and Brent then hit lows of USD 81.27/bbl and 86.60, before paring and reversing again to settle well within session ranges, as WSJ, citing a US official, said US forces fired on a Panama-flagged ship that attempted to run the American blockade of Iranian ports early Tuesday. Ahead, aside from the obvious geopolitical updates, macro attention will be on US CPI on Wednesday.

EQUITIES

CLOSES: SPX -0.32% at 7,728, NDX -0.33% at 29,525, DJI -0.34% at 53,797, RUT +0.32% at 3,027

SECTORS: Communication Services -2.12%, Real Estate -0.86%, Consumer Discretionary -0.75%, Technology -0.26%, Consumer Staples -0.26%, Health -0.26%, Materials -0.09%, Financials -0.03%, Industrials +0.60%, Energy +1.06%, Utilities +1.11%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.28% at 6,554, Dax 40 +0.27% at 26,395, FTSE 100 -0.17% at 10,844, CAC 40 -0.13% at 8,715, FTSE MIB +0.08% at 53,706, IBEX 35 +0.20% at 20,214, PSI +0.61% at 9,211, SMI -0.40% at 14,575, AEX +0.31% at 1,117

STOCK SPECIFICS:

• Intel (INTC) sought to increase share sale to ~ USD 20bln from the initial USD 15bln.
• Getty Images (GETY) reported a surprise loss per share, and revenue was light.
• Riot Platforms (RIOT) has struck a USD 9.1bln deal with Anthropic for 191MW of AI data centre capacity in Texas.
• Rocket Lab (RKLB) saw a wider-than-expected quarterly loss, outweighing stronger revenue and above-consensus outlook.
• Hims & Hers Health (HIMS) reported a much deeper-than-expected loss per share, and pressure on margins from its shift towards branded weight-loss drugs and international expansion outweighed a raised revenue guide.
• Cardinal Health (CAH) beat on EPS alongside a strong FY profit guide and raised its share buyback by USD 5bln.
• On Holding (ONON) gave disappointing results with a weak FY top-line outlook.
• Plug Power (PLUG) had a smaller-than-expected loss for Q2.
• ACV Auctions (ACVA) reportedly exploring sale amid takeover interest.
• Lionsgate (LION) reportedly facing pressure from activist Anson to "sell an AI message to the street" or "sell itself", Semafor reports.

FX

USD was little changed on Tuesday as markets await US CPI & PPI over the next couple of days. Key data was absent, leaving the focus on Fed speak and geopolitics. The former continued to show that combating inflation is the main Fed priority; meanwhile, optimism over a reopening of the Strait of Hormuz continues to fade as fresh attacks are seen on ships in both key waterways in the region. Iran maintains that its demands must be met for the Strait to be reopened, posing a greater challenge for the US this time to find a resolution when compared to the commitments needed for the brief reopening seen in June. However, given the increasing correlation between the dollar and short-term Treasury yields, CPI and PPI will hold great influence over USD moves this week.

AUD was slightly firmer vs the buck, helped by a hawkish tilt from the RBA Governor. The central bank kept rates unchanged at 4.35%, as expected. Initial AUD weakness was seen before reversing after Governor Bullock noted they will raise rates if needed and that only a hike or hold was discussed at the meeting. The board judged policy to be somewhat restrictive while inflation remains too high. AUD/USD hit lows of 0.7039 before recovering to 0.7059.

Aside from USD and AUD, currency-specific newsflow was quiet. CAD was slightly firmer, supported by higher oil prices; meanwhile, CHF was slightly weaker. Ahead, the calendar is to remain light; UK GDP due on Thursday and EZ GDP 2nd Est on Friday.