Stocks mixed on quad witching while Yen falls post-BoJ

• SNAPSHOT: Equities mixed, Treasuries down, Crude down, Dollar flat, Gold up
• REAR VIEW: BoJ hikes 25bps, 7-2 vote split; Japan authorities conduct rate check; Pakistan official to travel to Iran; Saudi to cancel Crude deliveries to Europe next month; Trump confirms US is talking to Houthis; US IP misses forecasts; Volkswagen cuts guidance; TXN raises dividend; ON signs Mbappe from NKE.
• WEEK AHEAD: Highlights include Xi’s visit to the US, Global Flash PMIs, Aussie jobs and the SNB rate decision. To download the full report, please click here.

MARKET WRAP

Stocks were mixed on quad-witching Friday, with the Nasdaq outperforming, and in the green, while the S&P 500 was flat, and the Dow and Russell closed lower. Breadth was negative, with the RSP sliding, while most sectors were lower. Industrials, Technology and Consumer Discretionary outperformed, while Utilities, Materials and Real Estate lagged.

Crude was choppy, initially pressured by reports of further regional diplomatic efforts before rallying after Bloomberg reported that Saudi Arabia told European refiners they would receive no crude in October, extending the disruption from September. However, oil ultimately pared the move to settle in the red.

Treasuries initially rallied alongside JGBs following the BoJ decision before reversing, with yields ultimately higher across the curve in a bear-flattening. The sell-off coincided with the earlier rise in crude, although T-notes failed to recover as oil reversed. US Industrial and Manufacturing Production disappointed but had little impact.

In FX, the Dollar was ultimately little changed, while the Yen underperformed after the BoJ delivered an expected 25bps hike, but offered little urgency towards further tightening. JPY later strengthened after Japanese authorities reportedly conducted a rate check. Sterling gained, while the Antipodeans were mixed. Gold prices rallied despite the move higher in UST yields.

Attention next week turns to the UNGA for any hints on Trump's next steps regarding Iran. Focus will also be on the Trump/Xi meeting, Fed speak, and Treasury supply. We will also see the announcement of the 20-30year buyback from the US Treasury on Wednesday ahead of the Thursday operation.

US DATA/BOJ

US IP: Industrial Production printed 0.0% M/M in August, beneath the expected 0.3% and the prior 0.2%. Manufacturing production dipped 0.3% (exp. +0.3%, prev. +0.2%), while capacity utilisation was unchanged at 76.3%, versus expectations for a tick higher to 76.4%. All in all, the IP report was surprisingly weak, although Oxford Economics would not read too much into the weakness in manufacturing. Declines across many durable goods industries mirrored gains seen in the preceding month, while Oxford remains constructive on the outlook for industrial production given the strength of AI investment demand in the economy.

BOJ POLICY ANNOUNCEMENT: BoJ hiked rates by 25bps to lift the short-term rate to 1.25%, as widely expected, with the decision made by a 7-2 vote as Takaichi-appointed board members Asada and Sato dissented. The central bank's language continued to signal future rate increases, but with no major signs of urgency, as it noted that it will continue to raise rates in response to economic and price developments as well as financial conditions, and will consider the timing and pace of rate hikes while examining the likelihood of realising the baseline scenario and risks. BoJ also reiterated that it will conduct monetary policy as appropriate from the perspective of sustainably and stably achieving the inflation target, and noted that the accommodative financial environment will be sustained after the policy rate change, thereby supporting economic activity. Regarding the dissenters, Asada considered that, with the rate of increase in the Core CPI recently below 2%, it could not necessarily be said that the economic situation was strong and it was desirable for the Bank to maintain the guideline for money market operations, while Sato considered that current economic and price developments did not appear to have substantially accelerated compared with before and, in this context, it was not appropriate for the Bank to raise the policy interest rate at this time. Overall, Ueda's press conference did not signal any urgency to accelerate the pace of tightening. He said easy monetary conditions are expected to be maintained, adding that rates have tightened but bank lending and asset markets remain accommodative. One hawkish aspect of the presser was Ueda's suggestion that the BoJ believes the phase of policy has changed. However, he later clarified that this meant the objective is now to stabilise underlying inflation at around 2%, essentially removing the initial hawkish interpretation.

FIXED INCOME

Treasuries fade post-BoJ gains as oil climbs. At settlement, 2-year +7.5bps at 4.745%, 3-year +8.4bps at 4.830%, 5-year +7.2bps at 4.858%, 7-year +7.1bps at 4.932%, 10-year +6.5bps at 5.004%, 20-year +5.2bps at 5.381%, 30-year +4.6bps at 5.336%.

THE DAY: Treasuries initially gained overnight, tracking JGBs higher following the BoJ rate decision. The BoJ hiked rates by 25bps as expected, but in a 7-2 vote, while the statement and Governor Ueda's presser did little to suggest the Bank is in a rush to hike again, although the door was left open to further rate increases.

Thereafter, Treasuries gradually sold off throughout the session, resulting in a bear-flattening of the yield curve. The downside coincided with upside in oil prices after reports that Saudi Arabia will not be delivering crude to Europe in October, extending the disruption after previous reports that September cargoes had also been cancelled.

However, as oil prices pared from their peaks to ultimately settle in the red, T-notes did little to follow suit and remained under pressure. US data saw Industrial Production and Manufacturing Production miss expectations, but the releases ultimately had little impact on the Treasury space. There were also plenty of block trades throughout the session, [with a full list available here].

There is little US data due next week aside from the Flash PMIs, although there is plenty of Fed speak alongside the 2-, 5- and 7-year Treasury auctions. From a macro perspective, the Trump/Xi meeting in the US will be closely watched, while the UNGA will also be in focus for any indication of the next steps from US President Trump regarding Iran.

SUPPLY

Notes

• US to sell USD 69bln of 2yr notes on September 22nd, USD 70bln of 5yr notes on Sept. 23rd, and USD 44bln of 7yr notes on Sept. 24th; all to settle Sept. 30th
• US to sell USD 28bln of 2yr FRN on Sept. 23rd, to settle on Sept. 25th.

Bills

• US to sell USD 92bln of 13-wk bills and USD 79bln of 26-wk bills on September 21st; all to settle on Sept. 24th   STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 13.8bps (prev. 13.9bps), Dec 33bps (prev. 32.2bps)

• EFFR at 3.88% (prev. 3.63%), volumes at USD 100bln (prev. USD 90bln) on September 17th
• SOFR at 3.85% (prev. 3.62%), volumes at USD 2.992tln (prev. USD 2.931tln) on September 17th
• NY Fed RRP op demand at 0.58bln (prev. 0.28bln) across 3 counterparties (prev. 3) on September 18th

CRUDE

WTI (X6) SETTLES USD 1.15 LOWER AT 96.08/BBL; BRENT (Z6) SETTLES USD 0.64 LOWER AT USD 99.29/BBL

The crude complex was choppy to end the week, but ultimately settled lower heading into the weekend. Downside was seen during the European morning, which pushed benchmarks to session troughs, amid reports that the Pakistani Interior Minister will travel to Iran within the next few hours, with discussions set to focus on the repercussions of the Houthi escalation on regional security.

Thereafter, benchmarks were already recovering before seeing notable strength through the remainder of the European morning and into the start of the US session, after Bloomberg reported that Saudi Arabia told European oil refiners they will receive no crude next month. As a reminder, a Reuters report earlier in the week noted that Saudi Arabia had halted September deliveries, while the Bloomberg report on Friday suggests the disruption has now extended into October.

As such, traders await any further de-escalatory or escalatory remarks or actions over the weekend, with Middle East developments remaining firmly in focus. For the record, in the weekly Baker Hughes rig count, oil +2 at 452 natgas +2 at 134, leaving the total at +4 at 595. WTI (X6) traded between USD 94.83-98.01/bbl, while Brent (Z6) traded between USD 97.80-100.15/bbl.

EQUITIES

CLOSES: SPX +0.16% at 7,650, NDX +0.67% at 29,644, DJI -0.19% at 51,687, RUT -0.50% at 2,860.

SECTORS: Technology +0.81%, Industrials +0.47%, Financials +0.06%, Consumer Discretionary +0.02%, Health -0.22%, Energy -0.24%, Consumer Staples -0.64%, Communication Services -0.74%, Real Estate -0.94%, Materials -1.10%, Utilities -1.35%.

EUROPEAN CLOSES: Euro Stoxx 50 -1.49% at 6,229, DAX -1.63% at 25,296, CAC 40 -1.49% at 8,065, FTSE 100 -1.45% at 10,659, SMI -1.15% at 13,787, FTSE MIB -1.60% at 51,545, IBEX 35 -1.60% at 19,514, PSI -1.33% at 9,542, AEX -0.52% at 1,095.

STOCK SPECIFICS:

• Texas Instruments (TXN): Raised its quarterly dividend by 7%.
• On Holding (ONON) / Nike (NKE): On signed Kylian Mbappé as part of its football push, ending his long-term relationship with Nike.
• Nucor (NUE): Next-quarter earnings outlook was light.
• Steel Dynamics (STLD): Q3 earnings guidance underwhelmed.
• Netflix (NFLX): Downgraded at Wells Fargo.
• Xenon Pharmaceuticals (XENE): Paused enrolment of new patients in clinical studies for treatments for major and bipolar depression.
• Amazon (AMZN): Reportedly in the EU's crosshairs over suspected restrictions on sellers' pricing.
• Boeing (BA): NASA is reportedly in talks with Boeing to expand Starliner missions, including the potential for 10 or more new flights, according to the WSJ.
• Volkswagen (VOW3 GY): Cut FY26 operating return on sales view to "up to 1%" (prev. 4-5.5%, exp. 4.29%).

US FX WRAP

The Dollar Index was ultimately little changed on Friday but saw two-way price action. DXY ground higher through the European session to hit a high of 100.55, remaining supported near post-FOMC highs as elevated energy prices and a lack of geopolitical diplomacy and ongoing supply constraints initially boosted crude prices and thus inflation expectations. The highs in the buck were seen as crude hit session highs after reports Saudi Arabia had also cancelled European crude deliveries for next month. However, the gains in crude ultimately pared, bringing the Dollar back down with them.

The Yen was the clear G10 laggard after the BoJ delivered an expected 25bps hike in a 7-2 vote. The two surprise dissenters and lack of guidance towards a faster tightening pace prompted immediate JPY pressure; Asada cited insufficient economic strength, while Sato argued price developments had not substantially accelerated. Ueda's presser added to the dovish tone, highlighting that easy monetary conditions were expected to be maintained, with bank lending and asset markets remaining accommodative. USD/JPY extended to a 158.05 high from a 155.88 low at the extremes. However, the Yen saw a notable bout of strength during the afternoon, initially with no clear catalyst. Nikkei later reported that the move followed a rate check conducted by Japanese authorities, which helped USD/JPY fall from around 157.80 to 156.60.

The Euro was also ultimately unchanged against the Greenback, with price action largely tracking swings in the Dollar. Meanwhile, ECB's Kaasik and Kazaks struck a hawkish tone, with Kazaks suggesting September's hike was unlikely to be the last unless the baseline changed materially. President Lagarde, however, reiterated that second-round effects were not evident. A Bloomberg survey suggested economists expect the ECB to wait until December before delivering a final rate increase.

The Pound saw gains heading into the end of the week as the Dollar pared its earlier move higher. Meanwhile, some profit-taking may also have supported Sterling following the sharp BoE-induced weakness seen on Thursday.

The Antipodeans were mixed, with Aussie retaining modest gains, while swings in AUD/USD largely tracked the ups and downs in the Dollar. Kiwi underperformed, however, as AUD/NZD extended its gains above 1.2400. Participants will be watching the Trump/Xi summit next week for any major developments, given the Antipodeans' exposure to China.