US Market Wrap: Stocks gain and oil slides on US/Iran diplomacy optimism

• SNAPSHOT: Equities up, Treasuries steepen, Crude down, Dollar down, Gold up
• REAR VIEW: Iran-US negotiations in New York have moved into a more detailed technical phase; Senior Iranian official says Strait of Hormuz will remain closed, no nuclear talks with US until Iran's conditions are met; Better-than-expected US Durable Goods in August; JPY supported by Japanese jawboning; Fed's Schmid says US debt appears to be "extreme"; Hammack raises demand inflation concerns; COST earnings beat; Russian gas supplies have reportedly restarted to Armenia.
• COMING UP: Data: Chinese Industrial Profits. Events: BoJ Minutes. Speakers: ECB’s Elderson, Lagarde; BoE’s Ramsden; Fed’s Barkin. Supply: Australia, Europe.
• WEEK IN FOCUS: Highlights include Xi’s visit to the US, Global Flash PMIs, Aussie jobs and the SNB rate decision. Click here for the full report.
• WEEKLY US EARNINGS ESTIMATES: MU, ACN, NKE, and more to report next week. Click here for the full report.

Stocks finished higher on Friday, with the Dow outperforming, while the Russell lagged. Most sectors closed higher, led by Technology, Industrials and Consumer Staples and Financials, while Energy was the clear laggard alongside lower crude, followed by Communication Services and Real Estate.

Macro focus centred on renewed US-Iran diplomatic optimism. Reports suggested negotiations have moved into a more detailed technical phase, while the Iranian President signalled readiness for an agreement with the US. Iranian sources subsequently pushed back on the prospect of imminent progress, but crude failed to recover and settled firmly lower, with WTI at USD 92.41/bbl and Brent at USD 97.44/bbl.

Treasuries steepened, with front-end yields falling while the long end rose. The front end tracked energy prices lower as diplomatic optimism reduced near-term inflation concerns, while long-end weakness potentially reflected reduced geopolitical risk and improved growth expectations. T-note futures ticked higher across the curve into settlement, perhaps reflecting some month-end positioning. US data was broadly solid, with Durable Goods beating the headline forecast and the final UoM report revised higher, while Fed officials continued to flag inflation concerns.

In FX, the Dollar weakened while the Yen was the clear outperformer, with USD/JPY falling back below 157.00 after Trump called Yen weakness problematic, while Japanese PM Takaichi said the currency is undervalued and Finance Minister Katayama said she expects excessive Yen selling to be corrected. GBP, AUD, EUR and NZD also gained against the Dollar, while CAD and CHF marginally underperformed.

Attention now turns to a key week for US data, including ISM Manufacturing, PCE and NFP, for further evidence on whether the strong growth, elevated inflation and solid labour market narrative remains intact.

US Durable Goods Orders were virtually unchanged in August (exp. -0.4%, prev. +1.1%), outperforming expectations but slowing from July, with Transportation Equipment (-0.6%) driving the weakness. Excluding transportation, orders rose 0.3% (exp. +0.6%), while orders excluding defence increased 0.1%. More encouragingly, the closely watched Nondefense Capital Goods Orders ex-Aircraft, a proxy for business equipment investment, jumped 1.6% M/M (exp. +0.5%, prev. +0.2%), pointing to continued strength in underlying business investment. Pantheon Macroeconomics notes that real core shipments increased a more muted 0.3% in August but remain on track to rise at an annualised pace of just over 10% in Q3. Pantheon expects business equipment investment excluding volatile computer and transportation components to increase at roughly the same pace, while overall equipment investment is tracking around 15% growth, boosted by another surge in computer-equipment spending. Overall, the headline report was broadly flat, but the underlying capital-goods data point to continued robust business investment, particularly in equipment and computers.

HAMMACK (2026 voter): Said the biggest risk with inflation is the formation of an inflationary mindset. The 2026 voter noted growth has held up well with the job market stable, though worries about demand-related pressure on inflation. Hammack believes capex will pressure inflation for a while, and underlying inflation is likely above target, albeit inflation expectations are 'reasonably well' anchored. She doesn't see current Fed policy as restraining the economy except for housing. On bond yields, she says the rise is driven by several factors, including a good economic outlook, with AI investment demand competing for investors in the bond market.

T-NOTE FUTURES (Z6) SETTLED UNCHANGED AT 104-27+

Yield curve steepens on US/Iran diplomatic optimism ahead of key week for US data. At settlement, 2-year -6.9bps at 4.862%, 3-year -6.6bps at 4.946%, 5-year -5.9bps at 5.007%, 7-year -3.9bps at 5.094%, 10-year -2.5bps at 5.183%, 20-year +0.6bps at 5.566%, 30-year +1.6bps at 5.505%.

THE DAY: The yield curve steepened on Friday, with front-end yields declining while long-end yields rose. The front end tracked energy prices lower, with crude settling in the red on further hopes for diplomacy between the US and Iran. CBS reported that talks have entered a technical phase, with Iran describing the atmosphere as increasingly positive. Meanwhile, Al Arabiya said a return to the MoU is possible, with positive indications from both sides and any arrangements likely to be phased in if an agreement is reached.

While the front end benefited from lower energy prices and associated inflation concerns, long-end yields moved higher, potentially reflecting reduced geopolitical risk and improved growth expectations as hopes build for some form of agreement between the US and Iran. However, into settlement, T-note futures ticked higher across the curve, perhaps reflecting some month-end positioning. Bloomberg estimates the US Treasury duration extension for Oct. 1 at 0.07yrs, in line with the 10-year October average and above last year's 0.06yrs, albeit below the 12-month average of 0.08yrs.

Elsewhere, August Durable Goods beat expectations; although unchanged M/M, it was above the -0.4% forecast. Ex-transport missed expectations, while the ex-aircraft component saw a strong beat. Following the data, the Atlanta Fed's Q3 GDPNow estimate was revised marginally lower to 5.0% from 5.1%, but continues to point to strong growth. The final September UoM report saw sentiment improve from the preliminary reading, although it remained below August levels, with both current conditions and expectations revised higher. Inflation expectations were unchanged from the preliminary release.

Fed speak saw Hammack, Schmid and Williams reiterate concerns around inflation. Williams acknowledged that tariffs generally do not produce sustained inflation, while Schmid said the inflation problem has not yet been solved. Hammack also highlighted concerns around demand-related inflation pressures.

Looking ahead, attention turns to next week's ISM Manufacturing PMI, PCE and NFP reports for further evidence on whether the strong growth, elevated inflation and solid labour market narrative remains intact. However, Warsh has stressed his preference for looking at trends in the data rather than placing too much weight on any single month's release.

Supply

Bills

• US to sell USD 82bln of 26-week bills and USD 95bln of 13-week bills on September 28th; to sell USD 85bln of 6-week bills and USD 54bln of 52-week bills on September 29th; all to settle on October 1st.

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 16.6bps (prev. 17.7bps), Dec 36.5bps (prev. 38bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 105bln (prev. USD 101bln) on September 24th
• SOFR at 3.88% (prev. 3.87%), volumes at USD 2.99tln (prev. USD 2.946tln) on September 24th
• NY Fed RRP op demand at 0.58bln (prev. 0.63bln) across 3 counterparties (prev. 3) on September 25th

WTI (X6) SETTLED USD 2.20 LOWER AT USD 92.41/BBL; BRENT (Z6) SETTLED USD 2.78 LOWER AT USD 97.44/BBL

Crude prices settled lower on reports of diplomatic progress following a US-Iran meeting at the UNGA this week. Downside was seen in response to US outlets reporting on remarks from Al Jazeera that US-Iran negotiations have moved beyond initial diplomatic contacts into a more detailed technical phase, with sources in Tehran describing the atmosphere as increasingly positive. Additionally, the Iranian President noted Iran is ready for an agreement with the US and could give up highly enriched uranium if it reaches an agreement with the US. Following the above, a Senior Iranian official speaking to Reuters affirmed the Strait of Hormuz will remain closed, and there will be no nuclear talks with the US until its conditions are met, and no nuclear concessions will be made. Also, Fars, citing a source, noted that Western reports of another round of US-Iran talks are false. Despite the rebuttals, crude prices remained lower post the CBS report.

Energy updates:

• White House eyes diesel fuel moves that fall short of an export ban, Politico reported.
• Russian gas supplies have restarted to Armenia, Ifx reports.
• Kremlin says it will tie a diesel solution to Black Sea shipping security; sanctions must be lifted to end Russia's diesel export ban.
• EU Energy Chief signals delay to methane rules for imports.
• Russia's Perm refinery halted processing after a drone attack on Friday, according to Reuters, citing sources.
• Saudi Arabia's crude oil exports have surged this month despite a sharp escalation in fighting with Iran-backed militants, according to CNBC, citing data from Kpler.

CLOSES: SPX +0.51% at 7,743, NDX +0.42% at 30,608, DJI +0.93% at 51,834, RUT +0.07% at 2,838

SECTORS: Energy -0.88%, Communication services -0.65%, Real estate -0.36%, Consumer discretionary flat, Materials +0.29%, Utilities +0.4%, Health +0.5%, Consumer staples +0.52%, Financials +0.53%, Industrials +0.94%, Technology +0.99%.

EUROPEAN CLOSES: European Closes: Euro Stoxx 50 +0.41% at 6,298, Dax 40 +0.51% at 25,396, FTSE 100 +0.14% at 10,695, CAC 40 -0.04% at 8,078, FTSE MIB +0.63% at 51,867, IBEX 35 +0.65% at 19,700, PSI +0.21% at 9,705, SMI +0.26% at 13,942, AEX +0.47% at 1,112

STOCK SPECIFICS:

• Costco Wholesale (COST): New member adds Y/Y growth slowed; quarterly results beat expectations
• Akamai Technologies (AKAM): Signed a seven-year USD 11.6bln cloud services deal with Anthropic
• People Inc. (PPLI): MGM Resorts is considering a bid for Barry Diller's People Inc.
• Apple (AAPL): Bernstein sees downside risk to December-quarter earnings as sharply higher memory-chip costs pressure iPhone margins.
• Corecivic (CXW): Patrick Swindle resigns as President and CEO.
• Nike (NKE): Downgraded at BofA.
• Microsoft (MSFT): Co. revamps Copilot with code generation and agentic AI tools.
• Tesla's (TSLA) Optimus humanoid robot is experiencing issues with manufacturing reliability, The Information reports, citing sources; production has increased around 10x in recent months.
• Plaid said Muse (META) partnership brings bank accounts, transactions, and investments into AI money management; SCHW and IBKR were weighed.
• Supermicro (SMCI) said it is moving full speed ahead with SpaceX (SPCX) AI on GW AI data centre buildout, powered by Nvidia (NVDA) GB300.
• White House eyes diesel fuel moves that fall short of export ban, reports Politico; refiners saw upside following the news.

USD WTD strength saw gains trimmed on Friday as a pullback in short-end and belly yields added pressure. The moves came amid potentially investors stepping in after the monster sell-off this week, considering current levels attractive. Also, allowing for a bid in Treasuries was lower crude prices in response to reports that US-Iran negotiations moved into more technical stages. A senior Iranian official said no nuclear talks with the US until Iran's conditions are met, and it will make no concessions on its nuclear programme. The latter runs contrary to remarks from the Iranian President.

US data showed August Durable Goods, and the ex-aircraft component top expectations, while ex-transport fell short of forecasts. Final UoM revisions saw upticks in Consumer Sentiment, albeit 1yr inflation expectations are elevated from the prior month. Following recent data, the Atlanta Fed GDPnow Q3 estimate was revised lower to 5.0% from 5.1%. US data had a muted reaction on price action, as did Fed speak, which saw Hammack reiterate her hawk stance.

The main driver for downside in DXY was JPY strength amid jawboning from Japanese officials. Koyodo reported that US President Trump raised concerns over a weak Yen with Japan PM Takaichi, who also called it undervalued. Furthermore, Japanese Finance Minister expects excessive Yen selling to be corrected. DXY now trades at 100.98 against earlier 101.35 highs. USD/JPY hit lows of 156.938.

In G10FX, CHF and CAD underperformed their peers, trading little changed vs the buck. GBP, AUD, and EUR benefited from lower energy prices. GBP is looking ahead to the Labour conference next week, for insight from PM Burnham and Chancellor Healey into the Autumn Budget.