US Market Wrap: Stocks rally on META AI optimism while crude tumbles ahead of UNGA

• SNAPSHOT: Equities up, Treasuries up, Crude down, Dollar up, Gold down
• REAR VIEW:  Trump reportedly held off striking Houthis for now; Iran reiterates conditions must be met to open the Strait of Hormuz; UK reportedly close to agreeing to help the Saudi military counter the Houthis; Houthi official warns Egypt, Turkey and Pakistan will likely be targeted in the next stages; Fed's Goolsbee says evidence is needed that supply-driven inflation is fading; Fed's Musalem reiterates case for higher rates; Moscow oil refinery has halted operations after Ukrainian drone attack; WFC raises META PT.
• COMING UP: Data: US ADP Employment Change Weekly, Italian 2025 Deficit Update. Events: NBH Policy Announcement. UN Meetings: UN General Debate including Trump, Macron, Burnham; Trump-Zelensky meeting; Trump-Burnham meeting; Trump-Gulf Leaders meeting. Speakers: RBA's Bullock; ECB's Lagarde, Nagel; Fed's Williams, Jefferson, Barkin. Supply: UK, Germany, US.
• 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: Thin earnings docket. Click here for the full report.

MARKET WRAP

Stocks rallied on Monday, with much of the upside led by Meta (META), resulting in Nasdaq outperformance. Meta's PT was upgraded at Wells Fargo, with the desk citing a strong start for its Muse AI agent, which in turn supported chip names such as INTC and AMD amid expectations for stronger CPU demand given high Muse usage rates. The majority of sectors were higher, with Communication Services, Technology and Consumer Discretionary outperforming, while Energy, Utilities and Consumer Staples lagged.

Crude prices tumbled on Monday amid hopes for diplomatic progress at the UN General Assembly this week, with Trump noting he is open to meeting Iranian President Pezeshkian. Elsewhere, participants will be watching the outcome of the Trump/Xi meeting for any developments on trade. Treasury Secretary Bessent said the US is looking to bring in more everyday items from China, while energy products on the US side and medical devices on the Chinese side could be suitable for tariff reductions.

In FX, the Franc and Dollar outperformed, while CAD and JPY lagged. CAD was weighed on by lower oil prices despite hawkish-leaning comments from Macklem, while JPY remained soft amid the continued fallout from Friday's BoJ decision despite the subsequent rate check by Japanese authorities. The Dollar gained despite the risk-on tone, potentially finding support from weakness in the Yen and Euro, with the latter pressured following weak German state election results for the incumbent CDU over the weekend.

Treasury yields were lower across the curve as oil prices tumbled, while hawkish Fed speak had little impact on T-notes. Both Musalem and Goolsbee warned about demand-driven inflation alongside ongoing supply pressures, with Goolsbee noting that if inflation is predominantly demand-driven, the policy response would need to be more aggressive and front-loaded.

Gold and silver prices moved lower as risk assets rallied, while Bitcoin saw notable gains.

FED

GOOLSBEE (2027 voter): Chicago Fed President Goolsbee said strong demand may be adding to inflation alongside energy, tariffs and other supply shocks, noting there is "no ambiguity" about what the Fed would do if demand is overheating. He said evidence is needed that supply-driven inflation is fading; otherwise, it is difficult to see a credible path back to 2%, while supply shocks are proving to have a more persistent impact on inflation and must therefore be accounted for when setting monetary policy. Goolsbee stressed that restoring price stability will not be painless and that the Fed must have the courage to fight inflation. Goolsbee said evidence on whether inflation reflects demand overheating or supply shocks remains conflicting, and he is still trying to determine the balance, although inflation data earlier in the year appeared to show supply shocks waning and some inflation now appears to be coming from demand. Goolsbee added that district contacts are relaying concerns that sound like traditional demand overheating. He warned that if inflation is predominantly demand-driven, the rate response will need to be more aggressive and more front-loaded. Meanwhile, if supply-shock inflation proves persistent, the Fed's only choice would be to reduce aggregate demand. He added that if fiscal policy is contributing to inflation, the Fed must take it into account. On the labour market, Goolsbee said the Fed does not currently have an employment problem, but does have an inflation problem, and wants evidence that inflation is going away. Business contacts report that the labour market is tightening, with alternative measures telling a similar story, while the unemployment rate is "pretty close" to full employment. He added that monthly job growth is not a particularly useful gauge of labour market health given uncertainty around population growth stemming from immigration policies. On policy, Goolsbee said estimates of the neutral rate are not particularly useful for short-run decisions, although if there is convincing evidence that inflation is returning to 2%, there would be no problem with rates coming back down. He remains optimistic that inflation can return to target provided there is no further evidence of demand overheating. On the SEPs, Goolsbee said that without them, markets will still seek to understand officials' reaction functions. He added that the Fed remains credible and that he does not view any forthcoming hikes as reversing last year's cuts.

MUSALEM (2028 voter, Hawk): Said without further policy restraint, it is more likely inflation will remain substantially above the 2% target 18 months from now. He noted that interest rates likely need to climb further to tame inflation that is both demand- and supply-driven and reiterated the case that it's better for rate hikes to be 'earlier and incremental' rather than 'later and larger'. He argued that even when stripping out supply-related factors, inflation is still 'too high' at up to 3%. The St. Louis Fed President said business contacts are planning on price increases “closer to 3%". Musalem described the labour market as stable around full employment and not a source of inflation pressure. The 2028 voter noted that the commodity shock is more than just oil, including base metals like copper.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 7 TICKS HIGHER AT 106-01+

Yields move lower as oil prices tumble. At settlement, 2-year -0.3bps at 4.753%, 3-year -2.2bps at 4.818%, 5-year -3.0bps at 4.833%, 7-year -3.6bps at 4.893%, 10-year -4.1bps at 4.959%, 20-year -4.2bps at 5.335%, 30-year -3.3bps at 5.294%.

THE DAY: Treasury yields were lower across the curve on Monday, with the curve bull flattening as the belly and long end led the move, while the 2yr was little changed.

The move lower in yields appeared to track the sharp decline in oil prices, with participants awaiting potential diplomatic developments between the US and Iran after US President Trump signalled an openness to meeting the Iranian President at the UN General Assembly this week. Crude ultimately settled lower by over USD 4/bbl.

Aside from geopolitics at the UNGA, attention will be on any US/China developments, with the Trump/Xi summit taking place this week. Treasury Secretary Bessent said the US is looking to bring in more everyday items from China, while energy products on the US side and medical devices on the Chinese side could be suitable for tariff reductions.

Fed speak leaned hawkish. Both Goolsbee (2027 voter) and Musalem (2028 voter) warned about the potential for demand-driven inflation alongside ongoing supply-driven price pressures. Musalem said that without further policy restraint, inflation is more likely to remain substantially above the 2% target 18 months from now. Meanwhile, Goolsbee warned that if inflation is predominantly demand-driven, the rate response will need to be more aggressive and more front-loaded.

With no tier-one US data this week, Treasury traders will be eyeing the 2-, 5- and 7-year auctions alongside the aforementioned macro developments and a plethora of Fed speak.

Supply

• US to sell USD 69bln of 2yr notes on September 22nd, 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 sold 3-month bills at a high rate of 4.015%, B/C 2.77x; sold 6-month bills at a high rate of 4.155%, B/C 2.62x

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 13.9bps (prev. 13.9bps), Dec 33bps (prev. 33bps).
• EFFR at 3.88% (prev. 3.88%), volumes at USD 96bln (prev. USD 100bln) on September 18th.
• SOFR at 3.85% (prev. 3.85%), volumes at USD 2.955tln (prev. USD 2.992tln) on September 18th.
• NY Fed RRP op demand at 0.58bln (prev. 0.58bln) across 15 counterparties (prev. 3) on September 21st.

CRUDE

WTI (X6) SETTLED USD 3.71 LOWER AT USD 92.37/BBL; BRENT (Z6) SETTLED USD 3.05 LOWER AT USD 96.24/BBL

Oil prices were weighed by diplomatic optimism around the US-Iran conflict, and continued profit-taking of the strong gains seen in early September. Initial upside sparked at the open from fresh Houthi attacks on Saudi's Aramco facilities and US President Donald Trump reportedly saying on Sunday that he is thinking of "blowing up" all of Iran as he left the Camp David retreat a day early to return to the White House. That said, the move faded, perhaps as the NYT reported that Trump appeared on Sunday to hold off on attacking the Houthis, at least for the time being, according to an admin official. Further adding to the downside was potentially Trump signalling openness to meeting with the Iranian President at the UN General Assembly in New York. Out of Iran,  the country reiterated that Hormuz will remain closed until its seven conditions are met and noted the war is not over; WTI and Brent traded between USD 91.19-97.22/bbl and USD 95.08-100.22/bbl respectively.

Energy updates:

• Saudi Aramco loaded 14mln barrels of crude on seven VLCCs from Gulf terminals on Sunday, Reuters reported.
• A Moscow oil refinery has reportedly halted operations after a Ukrainian drone attack on September 20th, Reuters reported.
• Russia is reportedly planning to extend its diesel ban beyond the end of September, via Bloomberg.
• Libya’s Sharara (300k BPD) oil output drops by more than half after a pipeline shutdown, via Bloomberg.

EQUITIES

CLOSES: SPX +1.49% at 7,765, NDX +2.83% at 30,482, DJI +0.71% at 52,054, RUT +0.52% at 2,875

SECTORS: Energy -2.57%, Utilities -0.43%, Consumer staples -0.37%, Materials -0.19%, Financials +0.3%, Industrials +0.36%, Health +0.67%, Real estate +1.05%, Consumer discretionary +1.49%, Technology +2.46%, Communication services +3.86%

EUROPEAN CLOSES:  Euro Stoxx 50 +1.31% at 6,318, Dax 40 +1.07% at 25,574, FTSE 100 +0.75% at 10,739, CAC 40 +0.92% at 8,139, FTSE MIB +1.60% at 52,372, IBEX 35 +1.08% at 19,724, PSI +0.79% at 9,617, SMI +1.23% at 13,957, AEX +0.66% at 1,102

STOCK SPECIFICS

• Accenture (ACN): Partnering with Anthropic to establish a team of embedded evaluators.
• Warner Bros. Discovery (WBD) / Paramount Skydance (PSKY): Paramount settles with US states over Warner Bros merger.
• Novo Nordisk (NVO): 2030 targets disappoint.
• Critical Metals (CRML): Clear Street argues a Trump-Greenland agreement could accelerate Critical Metals' Tanbreez development.
• MP Materials (MP): China Rare Earth Group reportedly in talks to acquire control of Shenghe Resources, which holds a 3% stake in MP Materials.
• Ciena (CIEN): Upgraded at Evercore ISI to 'Outperform' from 'In Line'.
• Telix Pharmaceuticals (TLX): Agreed to acquire ITM Isotope Technologies Munich for USD 1.65bln.
• Alkermes (ALKS): Orexin agonist reportedly shows potential to treat ADHD in an early-stage trial.
• Shopify (SHOP) announced Muse partnership.
• Meta (META) - Wells Fargo raised its Meta PT to USD 796 (prev. 640). Entering the Meta Connect conference with product momentum following successful model releases and early traction on Meta Muse assistant, the firm believes Meta now has a story to tell. Though early, Wells expects focus on usage stats of Muse assistant and models.
• Energy Secretary Wright, Interior Secretary Burgum and other White House officials were working on the issue [Diesel prices] through the weekend, Ag sec. Rollins said, adding that she expects an announcement “very soon on some potential actions”; oil refiners were weighed following the report.
• Fertiliser stocks (CF, MOS) were sold after US President Trump said the US is working to replace Canadian Potash with Belarusian potash.

FX

USD was broadly firmer against peers as markets held onto the view of another rate hike this year despite the decline in oil prices today due to diplomatic hopes. Fedspeak from Goolsbee (2027 voter) and Musalem (2028 voter) reinforced expectations of another hike this year. Musalem argued that without further policy restraint, it is more likely inflation will remain substantially above the 2% target 18 months from now. Both members acknowledge that inflation is driven by both supply and demand, with Musalem noting that supply shocks are not just limited to oil, including base metals such as copper. The US data calendar this week is thin, leaving most focus on the UN General Assembly, in which Trump will meet with Leaders from Ukraine, the UK, Japan, and Gulf countries, with Trump potentially open to a meeting with the Iranian President. Additionally, Trump is set to meet with China's President Xi on Thursday in Washington. DXY trades near intraday highs of 100.45.

CAD and JPY underperformed vs USD, the former weighed by lower crude prices, whilst the latter continues to lag post BoJ on Friday. USD/CAD was little changed towards new remarks from BoC Governor Macklem. He noted that if new US tariffs remain in place, Q4 growth could be roughly halved to below 1% and noted the current question is whether the current rate is correct or if they need to raise it. USD/CAD made a new monthly high of 1.4039 whilst USD/JPY climbed back above 157.00 to ~157.38.

EUR/USD traded lower on USD strength. Over the weekend, a disastrous state election result for Chancellor Merz’s CDU has increased the chance of future political instability in the region.  However, the state election has little impact on the federal government, with attention shifting towards whether Chancellor Merz is forced to resign. So far, he intends to stay on.