• SNAPSHOT: Equities mixed, Treasuries flatten, Crude mixed, Dollar down, Gold down
• REAR VIEW: Fed's Williams sees one more interest-rate hike as appropriate this year & no need for rate hike in 2027; US Existing Home Sales rise in September; Saudi Arabia told OPEC crude production rose 34% in September; BoJ is reportedly to lean back against back-to-back hikes in October; Mixed US bank earnings; Reports of Saudi Aramco HQ hit; Netanyahu & Trump spoke last week about renewing the war on Iran, before Trump said he wouldn't hit Iran before the midterms.
• COMING UP: Data: Chinese Inflation (Sep),Trade Balance (Sep), German Wholesale Prices (Sep), Spanish Final Inflation (Sep), US Inflation (Sep). Events: IEA OMR. Speakers: US President Trump; Fed’s Bowman, Barkin; BoE’s Pill, Breeden; BoC’s Macklem; ECB's Lagarde, Zigman, Elderson, Schnabel. Supply: Australia, Japan, UK, Germany. Earnings: ASML, Bank of America, BlackRock, Morgan Stanley, Progressive, State Street.

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MARKET WRAP

US indices were mixed, as the tech-heavy Nasdaq 100 lagged and was once again weighed on by losses in memory names, highlighted by the memory ETF DRAM closing with losses in excess of 3%. The move follows a sharp decline in the Kospi overnight, following Monday's report that China's CXMT unveiled key progress on chip structures. Overall, sectors were mixed as Health underperformed, and hit on poor JNJ results, while Energy sat atop of the pile. The crude complex was choppy, ahead of weekly private inventory figures after-hours, as Middle East headlines were plentiful and showed no signs of abating, as reports indicated that Saudi Aramco HQ was struck, albeit awaiting confirmation from the Saudi side.

Away from geopolitics, US Q3 earnings season got underway and has been a mixed bag so far. JPM and GS WFC, JNJ, and C all saw losses (more details below), with highlights on Wednesday including ASML, BAC, and MS. The Dollar Index was lower amid easing yields, to the benefit of global G10 FX peers. For the Yen, source reports earlier said the BoJ is reportedly leaning against back-to-back hikes in October but could hawkishly adjust inflation language. Precious metals were lower, with spot silver underperforming its counterpart.

Moreover, a dovish reaction was seen across markets after NY Fed President Williams said he sees no need for a rate hike in 2027 at this time, but added he sees one more interest-rate hike appropriate this year. Note an immediate dovish reaction, which swiftly pared, and was likely seen on the fact that he sees no hikes in 2027, which was run first, as participants may have read it as Williams sees no more hikes, before later adding that he sees 1 hike this year, which is in fitting with his recent commentary. In terms of money market pricing, 81bps of hikes are currently seen by October 2027, so it still remains on the dovish side of Fed expectations. Elsewhere from the Fed, Waller said higher yields could do some of the Fed's work on demand.

FED

WILLIAMS (voter): Said sees no need for a rate hike in 2027 at this time, and one more interest-rate hike is appropriate this year, with the latter comment in fitting with what he has previously remarked. NY Fed President still believes disinflationary forces are at play, and it is not an economy that is overheating. The influential Governor remarked no sign the labour market is contributing to inflation, and not seeing broad price pressure outside AI and energy. Williams, in the interview to BBG, added that the rate path will be about maintaining a balanced economy.

WALLER (voter): Hyperscalers are still planning on spending trillions of dollars over the next three years, though if AI investment falls off, it will put a check on prices. Inflation expectations are well anchored. AI build-out is definitely having an impact on yields, and real yields reflect the impact of real growth. Higher yields could do some of the Fed’s work on demand.

GOOLSBEE (2027 voter): Inflation tied to the AI boom is “jumping out of its lane” and starting to push up prices in unrelated corners of the economy. Chicago Fed President added prices are going up in spaces that are not just components in data centres and the directly adjacent industries. Said he is getting increasingly nervous that that’s just straight, old-fashioned overheating demand. Said if inflation remains persistent, then think it’s clear what the Fed has to do”, in response to whether the central bank should raise interest rates again when it meets later this month. Need to start showing some progress if we’re going to get back on the kind of rate-cutting path that we were on. The job market still looks very stable to me. Growth has been solid, consumer spending solid.

DATA

EXISTING HOME SALES: Existing home sales rose 1.5% in September to 3.99mln from 3.93mln, above the expected 3.95mln. National median home price for existing homes rose 1.5% M/M to USD 417,500, and inventory of homes for sale was 1.6mln units, 4.8 months' worth (prev. 4.9 months' worth M/M). NAR Chief Economist Yun said, “Despite the small monthly gain on a seasonally adjusted basis, August and September marked the two slowest months for home sales this year,” and “further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.”

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 5+TICKS HIGHER AT 104-23+

Yield curve flattens amid on dovish Fed williams ahead of US CPI. At settlement, 2-year -0.2bps at 4.789%, 3-year -0.7bps at 4.916%, 5-year -1.6bps at 5.005%, 7-year -2.4bps at 5.106%, 10-year -2.5bps at 5.217%, 20-year -4.1bps at 5.606%, 30-year -3.9bps at 5.561%.

THE DAY: The Treasury curve flattened on Tuesday, with front-end yields little changed while long-end yields declined, seemingly benefiting from haven demand amid a technology-led equity sell-off.

Oil prices were mixed but generally climbed throughout the US session, with Saudi-Houthi tensions remaining elevated as both sides threatened energy infrastructure. Meanwhile, US President Trump warned the Houthis that he would still be in office after the midterm elections and would not forget their actions against Saudi Arabia. Initial upside in short-end yields on higher energy prices faded in response to the release of a Bloomberg TV interview with Fed Vice Chair Waller, who sees no need for a rate hike in 2027 at this time. He added that he does see one more interest-rate hike as appropriate in 2026.

With the cash Treasury market closed on Monday, trading resumed against a backdrop of developments from the weekend and the previous session. US memory stocks remained under pressure amid concerns over increased competition from China, weighing on broader equity sentiment and potentially contributing to a flight-to-quality bid in Treasuries. Meanwhile, some of the weakness in technology stocks was also attributed to comments from Broadcom (AVGO) CEO, likening tech investing to a casino.

Elsewhere, other Fed commentary saw Governor Waller acknowledge that higher yields could do some of the Fed's work in restraining demand, potentially strengthening the case for an October pause. Meanwhile, Chicago Fed President Goolsbee warned that inflation remains persistently elevated, while noting that the labour market is still stable. Asked whether the Fed should hike again in October, Goolsbee suggested that persistent inflation would warrant further tightening.

Attention now turns to Wednesday's US CPI report, which will help shape expectations for the Fed's next policy move, ahead of Thursday's PPI release and Fed Chair Warsh's remarks early Friday morning BST.

Supply

Bills

• US sold 6-wk bills at high-rate 3.980%, B/C 2.58x; Sold 3-month bills at a high rate of 4.085%, B/C 2.68x; Sold 6-month bills at a high rate of 4.200%, B/C 2.76x
• US to sell USD 110bln of 4-week bills and USD 105bln of 8-week bills on October 15th; to sell USD 75bln of 17-week bills on October 14th; all to settle October 20th

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 5.4bps (prev. 5.3bps), Dec 27.6bps (prev. 27.1bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 117bln) on October 9th
• SOFR at 3.87% (prev. 3.87%), volumes at USD 2.961tln (prev. USD 2.963tln) on October 9th
• NY Fed RRP op demand at 0.275bln (prev. 0.30) across counterparties 1 (prev. 1) on October 13th

CRUDE

WTI (X6) SETTLED USD 0.40 HIGHER AT 94.14/BBL; BRENT (Z6) SETTLED USD 0.96 LOWER AT 105.69/BBL

The crude complex was choppy on Tuesday, as Middle East headlines were plentiful, and show no signs of abating. Saudi-Houthi tensions remain high, with the Saudi-led coalition warning citizens to evacuate Sana’a, the location of a Yemen Petroleum Company facility. In response, the Houthis threatened to strike Aramco facilities, with in later trade sources saying loud booms were heard in Dhahran, in the vicinity of Saudi Aramco HQ. On this, Trump repeated that the Houthis are behaving very badly and will make a decision on Iran very soon. On the supply footing from Saudi, benchmarks saw some pressure following the OPEC MOMR for October, whereby Saudi Arabia produced 8.372mln bpd of crude in September, up from 6.238mln bpd in August.

Moving to Iran and the US, where tensions remain very high, as expected, upside was seen as reports circulated that Netanyahu spoke with Trump last week about renewing the war on Iran, and discussed a potential joint US-Israeli operation that would hit military and nuclear targets. Note, the call about the possible attack took place before Trump said he would not strike Iran ahead of the midterms. Moreover, Iran's Nadaja stated that "a violating oil tanker caught fire in the eastern Strait of Hormuz".

For the record, WTI traded between USD 91.70-94.70/bbl and Brent 101.23-103.49/bbl. In the weekly data, stocks of crude oil in the US SPR were unchanged at 283mln bbls last week, remaining at the lowest level since October 1982. Ahead, weekly private inventory metrics await after-hours.

EQUITIES

CLOSES: SPX -0.01% at 7,806, NDX -0.31% at 30,569, DJI -0.35% at 51,671, RUT -0.39% at 2,784

SECTORS: Health -1.32%, Financials -0.4%, Consumer staples -0.33%, Industrials -0.29%, Real estate -0.28%, Consumer discretionary flat, Technology flat, Materials +0.37%, Utilities +0.57%, Communication services +0.88%, Energy +1.76%.

EUROPEAN CLOSES: Euro Stoxx 50 -0.59% at 6,165, Dax 40 -0.10% at 25,251, FTSE 100 -0.06% at 10,650, CAC 40 -0.07% at 7,828, FTSE MIB +0.04% at 50,057, IBEX 35 -0.39% at 19,211, PSI +0.73% at 9,380, SMI +0.36% at 13,928, AEX -0.54% at 1,129

EARNINGS:

• JPMorgan (JPM): Choppy post-earnings; initially lower on EPS, rev., net income & FICC sales miss, but reversed after raising FY26 NII guidance.
• Goldman Sachs (GS): EPS, rev. & NII top Wall St. consensus.
• Wells Fargo (WFC): Rev. & NII light.
• Citi (C): Major metrics beat, as did FICC sales & trading rev., but equities & sales trading rev. fell short.
• Johnson & Johnson (JNJ): Top line short but did lift FY profit outlook.
• UnitedHealth (UNH): Q nos. impressed & MCR lower than exp alongside lifting FY profit outlook.
• Domino's Pizza (DPZ): SSS fell short of exp.

STOCK SPECIFICS:

• Navitas (NVTS) collabs w/ NVDA on 800 V-to-12 V power delivery board for next-gen AI infrastructure.
• SentinelOne (S) to offer $1.25bln of convertible senior notes due 2031.
• SixFlags (FUN) had one person die & several injured following a roller coaster incident at a Six Flags amusement park.
• BioNTech (BNTX) AHEAD-MERIT Phase 2/3 clinical trial did not meet its first dual primary endpoint.
• Syndax Pharmaceuticals (SNDX) Phase 2 idiopathic pulmonary fibrosis study misses endpoint.
• Google (GOOGL) is rolling out Gemini 4 Argon to Google AI subscribers in Google Antigravity, Gemini App & AI Mode in Search.
• Qualcomm (QCOM) won jury verdict, and jury finds Arm (ARM) breached license agreement.
• Muddy Waters short Edison International (EIX).

FX

USD was weaker, weighed by lower US yields, with crude prices choppy, although diesel futures are back at YTD highs. The main update was via the NY Fed Chair Williams who sees one more rate hike as appropriate in 2026, as he previously said, and doesn't see a need for a rate hike in 2027 at this time, citing an optimistic view on inflation returning to 2%, not seeing broad price pressure outside AI and energy. Near-term focus lies on the CPI report on Wednesday, Core M/M expected 0.2%, Core Y/Y 2.5%, and Headline M/M 0.6%.

Away from the Fed, newsflow was centered on geopolitics. The Saudi-Houthi conflict remains, as Houthis have reportedly struck near the ARAMCO HQ; meanwhile, Trump and Netanyahu reportedly spoke last week, discussing a potential joint operation that would hit Iranian military and nuclear targets.

JPY was modestly firmer, failing to match peers' gains against the USD on a Bloomberg report that sent mixed signals for the JPY. JPY initially weakened as sources said the BoJ is to lean against back-to-back hikes in October, before strengthening on the prospect that the BoJ could adjust the 2% inflation target language to "approx. 2% from "approaching 2". USD/JPY hit session lows of 157.83 before moving back towards ~158.33.

Scandis, NZD, and CAD outperformed in the G10 space. On EUR/GBP, ING cut its EUR/GBP forecast, forecasting EUR/GBP to trade in a 0.84-0.85 range for at least several more months, arguing that "Idiosyncratic risks surrounding the euro are unlikely to fade anytime soon, and the Bank of England has sent a clear enough signal that it is prepared to hike".