US Market Wrap: Stocks fall and crude gains amid escalating geopolitics

• SNAPSHOT: Equities down, Treasuries down, Crude up, Dollar flat, Gold down
• REAR VIEW: NY Fed SCE sees 1- & 5yr inflation expectations unchanged, 3yr ticks lower; Saudi confirms energy facilities were hit, Houthis take responsibility; Qatar says it's working with peers and China to resume talks with US and Iran; IRGC announces capture of US drone; US strikes Iranian tanker, IRGC vows response; Average US 3yr note auction; NVS sinks on Phase 3 trial miss, peers dragged lower; GLW signs deal with VZ; QCOM signs pact with AMZN
• COMING UP: Data: Chinese Inflation (Aug), US ADP Employment Change Weekly. Events: US Treasury Long-End Bond Buybacks Announcement, NBP Announcement, EIA STEO. Speakers: ECB's Lagarde. Supply: Australia, Germany, US.

Stocks closed lower on Tuesday, with the Dow Jones lagging while the equal-weight S&P fell by around 1%, with the majority of sectors also in the red. Energy, Utilities and Real Estate closed higher, while Health Care, Financials and Materials lagged.

Crude prices chopped throughout the session but ultimately settled in the green. Oil was initially supported by comments from the Saudi Energy Minister that a number of energy facilities and utilities had been hit, temporarily halting some operations. However, crude later moved off its highs after the Qatari Foreign Ministry said it is working with regional partners and China to resume talks between the US and Iran. Post-settlement, oil moved higher again on reports of explosions at Kharg Island, followed by reports that the US had attacked a "small" Iranian oil tanker. Further choppy trade followed after the WSJ reported that Iran had launched an undisclosed second wave of attacks on US Navy ships, although none were struck.

In FX, the Yen continued to outperform while the NZD lagged. The CAD found some support from firmer oil prices, although ongoing trade tensions with the US limited gains. The dollar was little changed.

Treasuries largely tracked moves in oil prices, with yields ultimately settling higher across the curve. The 3-year auction was solid, although not particularly strong despite the higher outright yield on offer versus August. Attention remains firmly on this week's US inflation data, with PPI due Thursday and CPI on Friday.

The data highlight on Tuesday was the NY Fed SCE report, which saw inflation expectations little changed, while perceptions of the labour market deteriorated, albeit consumers saw a lower risk of losing their own jobs.

Gold prices were hit amid the higher-yield environment, with attention turning to Friday's US CPI report for further direction on September Fed expectations, with money markets currently assigning around a 60% probability of a 25bp hike.

NY FED SCE: US consumer inflation expectations were broadly stable in August, with one-year expectations unchanged at 3.6%, three-year expectations edging down to 3.2% (prev. 3.3%), and five-year expectations unchanged at 3.0%. However, expected gas price growth jumped 1.7ppts to 4.6%, while food, medical care and rent price expectations also increased. On the labour market, consumers became more pessimistic about the broader outlook, with the perceived probability that unemployment will be higher in a year's time rising 1.6ppts to 44.4%, its highest since April 2020, while the perceived probability of finding a job after losing one fell to 45.4%. Conversely, the perceived probability of losing one's job declined to 13.8%, its lowest since February 2026, while the expected quit rate rose to 19.5% from 18.6%. Household finances also showed some deterioration: perceptions and expectations of financial situations worsened, expected credit availability deteriorated, and the perceived probability of missing a minimum debt payment over the next three months rose 1.2ppts to 13.2%. Overall, the survey showed largely stable inflation expectations but deteriorating perceptions of the broader labour market and household finances, despite consumers seeing a lower risk of losing their own jobs.

T-NOTE FUTURES (Z6) SETTLED 5 TICKS LOWER AT 107-10

T-notes chop to oil prices as eyes turn to inflation data and supply. At settlement, 2-year +2.6bps at 4.400%, 3-year +2.6bps at 4.476%, 5-year +2.5bps at 4.573%, 7-year +2.7bps at 4.683%, 10-year +2.0bps at 4.804%, 20-year +2.2bps at 5.270%, 30-year +2.0bps at 5.264%.

THE DAY: Treasuries were choppy on Tuesday following the return from the long weekend. T-notes moved lower overnight before moving higher through the US morning as oil prices came off their highs, although gains were pared into settlement, with yields settling higher across the curve. Crude had initially been supported by comments from the Saudi Energy Minister that a number of energy facilities and utilities had been hit, temporarily halting some operations. However, oil later moved off its highs after the Qatari Foreign Ministry said it is working with regional partners and China to resume talks between the US and Iran.

The data highlight on Tuesday was the NY Fed SCE report, which saw inflation expectations little changed, while perceptions of the labour market deteriorated, albeit consumers saw a lower risk of losing their own jobs. The data had little impact on the Treasury market, with attention turning to US inflation data later this week alongside further Treasury supply.

The 3-year auction was solid, with the 0.1bp stop-through, above-average bid-to-cover, strong direct participation and low dealer allocation pointing to a healthy reception, particularly given the significant CPI event risk later this week. The substantially higher outright yield versus August likely helped support demand, although weaker indirect participation and the smaller stop-through prevented the result from being particularly strong.

Attention now turns to the US PPI and CPI reports due Thursday and Friday, respectively, which will be key in shaping Fed rate expectations ahead of next Wednesday's FOMC. Money markets currently assign around a 60% probability of a 25bp hike.

SUPPLY

• US sold USD 58bln of 3-year notes; stop-through 0.1bps
• US sold 6-week bills at a high rate of 3.740%, B/C 2.93x
• US sold 3-mth bills at high-rate 3.800%, B/C 2.61x; 6-mth bills at high-rate 3.890%, B/C 2.88x

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Sept 14.6bps (prev. 14.9bps), Dec 35bps (prev. 34.8bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 103bln (prev. USD 109bln) on September 4th
• SOFR at 3.65% (prev. 3.66%), volumes at USD 2.888tln (prev. USD 2.949tln) on September 4th
• NY Fed RRP op demand at 0.63bln (prev. 0.68bln) across 3 counterparties (prev. 2) on September 8th

WTI (V6) SETTLED USD 1.55 HIGHER AT USD 93.03/BBL; BRENT (X6) SETTLED USD 0.92 HIGHER AT USD 97.92/BBL

Note: Given Labour Day on Monday (WTI didn't settle), WTI and Brent traded at wider spreads than usual on Tuesday.

The crude complex saw choppy trade, as US participants returned after the long Labor Day weekend. Initially, WTI and Brent were buoyed and hit peaks of USD 94.73/bbl and USD 99.46/bbl, respectively, after the Saudi Energy Minister said a number of energy facilities and utilities were hit, and that they are temporarily halting some operations. The Energy Minister added that authorities are working to ensure the safety of facilities and continuity of operations. Prior to this, Yemeni forces reportedly launched ballistic missile and drone attacks on targets in Saudi Arabia, including around Khamis Mushait, Abha airport and King Khalid Air Base. Following these remarks, benchmarks pared a large chunk of gains, and albeit seemingly not a headline driver, just on slightly more constructive remarks; Iran reported “significant progress” on a Strait of Hormuz shipping route, while Qatar said it is working with regional partners and China to resume US-Iran talks. In terms of SPR, crude oil stocks fell by about 1.2mln barrels to 285.4mln barrels last week, the lowest since 1982.

CLOSES: SPX -0.58% at 7,674, NDX -0.12% at 29,508, DJI -1.18% at 52,791, RUT -0.52% at 2,960

SECTORS: Healthcare -2.55%, Financials -1.43%, Materials -0.91%, Industrials -0.51%, Consumer Discretionary -0.49%, Consumer Staples -0.48%, Communications -0.29%, Technology -0.19%, Real Estate flat, Utilities +0.85%, Energy +1.01%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.14% at 6,413, DAX 40 -0.05% at 25,993, FTSE 100 -0.10% at 10,812, CAC 40 +0.14% at 8,318, FTSE MIB -0.10% at 52,177, IBEX 35 -0.12% at 19,997, PSI +0.66% at 9,481, SMI -1.55% at 14,058, AEX +0.06% at 1,116

STOCK SPECIFICS:

• Qualcomm (QCOM) announces a multi-generational pact with Amazon (AMZN) to build next-gen AI data centre infrastructure
• Novartis' (NVS) Phase 3 Lp(a)HORIZON study of pelacarsen missed its primary endpoint
• Tesla (TSLA) FSD Supervised approved for use in Slovenia.
• United Natural Foods (UNFI): EPS beat.
• Uber (UBER) President and COO purchased 70k shares.
• Intel (INTC) upgraded at Northland to 'Outperform' from 'Market Perform'.
• Rigetti (RGTI) secured USD 100mln in US Commerce Department funding.
• Amgen (AMGN) downgraded at BMO Capital to 'Market Perform' from 'Outperform'.
• Peloton Interactive (PTON) downgraded at Morgan Stanley to 'Underweight' from 'Equal Weight'.
• Corning (GLW) has entered into a fibre deal with Verizon (VZ) for the building of AI connectivity, CNBC reports.
• Constellation Brands (STZ) said unexpected inflation in US trucking and commodity costs will create "a little bit of gross profit margin pressure" in the second half despite significant cost savings.

USD was choppy on Tuesday as geopolitical developments dictated oil price swings ahead of US CPI and PPI this week. USD failed to track the move higher in US 2yr yields and oil prices amid the Houthis hitting Saudi Arabia's energy facilities. The US Treasury's plans to increase buyback sizes of longer-dated nominal coupon securities may still be acting as a dampening factor for the USD given the resurfacing of the debasement trade in recent weeks. As we await the likely determinants of the FOMC September meeting, CPI and PPI this week, the focus will be on geopolitical developments. Multiple explosions were heard across Iran, and i24 News reported that the cause was US attacks on Iranian oil tankers. Iran had warned such attacks would be met with a response on US bases.

JPY extended its Labor Day strength that was likely exacerbated by thin liquidity. USD/JPY now trades lower around 153.87, seeing weakness through negative US-Iran headlines, breaking its usual positive correlation with higher US yields. Today's data was also positive for the Yen, in which Labour Cash Earnings were firmer than expected, with Q2 GDP revised higher.

NZD was the G10 laggard on Tuesday, continuing to underperform vs AUD following the dovish RBNZ hike last week. AUD, EUR, GBP and CHF were all little changed. CAD saw modest strength despite Canada's retaliatory tariffs taking effect today. According to Radio-Canada, USTR Greer is to meet with Canadian trade minister Leblanc today.