Stocks recover from recent weakness as AI concerns ease - Newsquawk US Market Wrap

• SNAPSHOT: Equities mixed, Treasuries down, Crude mixed, Dollar down, Gold up
• REAR VIEW: Hot US PPI report; Retail Sales above forecasts; Claims figures little changed W/W; US is reportedly considering using a MOAB against Iran; US has reportedly suggested that IEA nations supplement oil release with an extra 100mln barrels; Syrian gas export pipeline targeted in attack; “Anthropic’s Q3 sales reportedly missed bullish expectations; TSMC Q3 earnings beat; NVDA CEO says CoreWeave's cost of capital is decreasing; Poor Australian jobs report.
• COMING UP: Data: EU Final Inflation (Sep), Italian Final Inflation (Sep), US Import/Export Prices (Sep), Industrial Production (Sep). Speakers: BoE’s Bailey; Fed Chair Warsh; BoC’s Macklem. Supply: Australia. Credit Ratings: Morningstar DBRS on Italy.

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MARKET WRAP

Stocks were mixed on Thursday, with the Nasdaq closing lower while the Dow and Russell rallied, the S&P 500 was little changed and the equal-weight S&P outperformed, indicating positive breadth. Nasdaq weakness was led by continued selling in AI, chip and memory stocks, with the index opening over 1% lower following a 7.5% drop in the KOSPI overnight. Late Wednesday, Anthropic's Q3 revenue was reportedly short of bullish expectations set over in the summer. However, sentiment improved after the opening bell, with equities gradually recovering throughout the session as technology stocks rebounded. Most sectors closed in the green, led by Health Care, Materials and Financials, while Energy, Technology and Utilities finished lower.

The macro focus remained on US economic data and geopolitical developments. PPI came in hotter than expected, adding to inflation concerns following Wednesday's CPI report, while Retail Sales were solid, Jobless Claims were in line with expectations and the NY Fed Manufacturing survey beat forecasts, although the Philly Fed survey disappointed. The initial market reaction was briefly hawkish following the PPI and Retail Sales releases, although the move was short-lived. On the geopolitical front, reports suggested US President Trump was considering using the "Mother of All Bombs" against Iranian energy infrastructure should he decide to resume combat operations.

T-notes ultimately settled higher, with haven demand from Wednesday seemingly extending into the overnight session amid the technology-led equity sell-off. However, T-notes subsequently pared gains as technology stocks recovered and equities pushed higher, potentially reducing demand for haven assets.

In FX, the Dollar weakened, although AUD underperformed following a disappointing Australian labour market report. Meanwhile, CHF outperformed alongside declining US Treasury yields, while GBP and EUR also posted gains. Gold and silver advanced, alongside Bitcoin.

Attention now turns to Fed Chair Warsh's remarks at the IMF overnight, with participants looking for his assessment of the latest inflation reports and any indications of his appetite for an October rate hike, although he has expressed a preference against providing explicit forward guidance.

DATA

PPI: US producer prices rose sharply in September, with headline PPI increasing 1.3% M/M (exp. 0.5%, prev. 0.5%), marking the largest monthly increase since March 2022. The annual rate accelerated to 6.3% (exp. 5.3%, prev. 5.6%), its highest since December 2022. Core PPI rose 0.7% M/M (exp. 0.3%, prev. 0.2%), while the annual rate increased to 5.0% (exp. 4.4%, prev. 4.8%). Under the hood, goods prices surged 2.6%, the largest increase since the series began in 2009, driven predominantly by a 10.8% jump in energy prices, with gasoline prices rising 20.3% and accounting for half of the increase in goods prices. Food prices also rose 1.2%, while services prices increased 0.8%, driven partly by a 1.4% rise in trade services margins and a 3.4% increase in transportation and warehousing costs. Oxford Economics wrote that they expect PCE to print 0.5% M/M and 3.6% Y/Y, rising from 0.3% and 3.4%, respectively. OxEco continue to forecast Fed rate hikes in October and December.

RETAIL SALES: Retail Sales rose 0.8% M/M in September, above the expected 0.3%, though easing from the August 1.3% figure. Sales at gasoline stations largely contributed to the headline beat, rising 6.4% amid elevated energy prices. Ex-gas/autos rose 0.2%, notably easing from the 1.1% prior; meanwhile, the core component, Control Group, rose 0.1%, shy of the expected 0.3% (prev. 1.2%). Oxford Economics wrote that consumer spending is still on track for a 3.3% annualised gain in Q3, but “we expect spending to lose momentum heading into the key holiday shopping season as the drag from higher prices weighs more heavily on consumers”.

CLAIMS: US Initial claims (w/e October 10th) rose by just 1k to 199k (exp. 200k), leaving the 4-week average little changed at 198.5k. On an unadjusted basis, claims rose 19,456, +11.4% W/W. Largest gains: Ohio (+3,887), Tennessee (+3,484), California (+2,004). Largest drops: Nevada (-566), Maryland (-317), Georgia (-179). Seasonal factors had expected an increase of 18,799, +11.0% W/W. Continuing Claims fell to 1.710mln as expected from 1.714mln. Oxford Economics noted the headline readings point to a stable labour market with layoffs remaining subdued. The firm notes that trend job growth is consistent with their forecast of the break-even rate, suggesting unemployment will continue to move sideways.

NY FED: The NY Fed Empire State Manufacturing Index surged to 25.5 in October (exp. 10.3, prev. 7.6), marking its highest level since December 2021 and signalling a sharp acceleration in manufacturing activity. Under the hood, New Orders jumped to 23.2 (prev. 2.0), while Shipments rebounded to 13.1 (prev. -3.2) and Unfilled Orders increased to 14.0 (prev. 5.9). On the labour front, employment remained in expansionary territory at 10.3 (prev. 10.6), although the average workweek index eased to 9.1 (prev. 17.0). Meanwhile, price pressures remained elevated, with Prices Paid moderating to 59.5 (prev. 63.1), while Prices Received increased to 30.6 (prev. 28.1). Supply-chain pressures intensified, with delivery times lengthening and supply availability deteriorating to -15.1 (prev. -11.9), its lowest level since June 2022. Looking ahead, the six-month business conditions outlook declined to 21.0 (prev. 29.0), suggesting that firms remain optimistic about future activity, albeit less so than in September. However, forward-looking price expectations increased further, indicating that inflationary pressures could remain persistent.

PHILLY FED: The Philadelphia Fed Manufacturing Index fell to 20.9 in October (exp. 28.4, prev. 37.8), its second consecutive monthly decline, although it remained in expansionary territory, signalling continued growth in regional manufacturing activity. The internals saw New Orders fall sharply to 4.3 (prev. 29.2), while Shipments eased to 15.3 (prev. 27.7), pointing to a notable moderation in demand and output. Labour indicators also softened, with Employment declining to 9.1 (prev. 11.8) and the Average Workweek falling to 7.5 (prev. 18.0), its lowest since June. On inflation, Prices Paid eased to 43.2 (prev. 48.6), although Prices Received jumped to 40.1 (prev. 31.3), its highest since May 2025, suggesting firms continued to pass higher costs onto customers. Looking ahead, firms remained optimistic, although expectations moderated considerably, with Future Business Conditions falling to 33.0 (prev. 52.9), its lowest since January, while Future New Orders declined to 37.0 (prev. 62.3) and Future Employment to 30.1 (prev. 50.6). Future CAPEX also eased to 34.9 (prev. 37.1), while expected price pressures remained elevated despite moderating. Notably, the survey's special questions showed that 52.2% of firms expect to increase total capital spending in 2027, compared with 36% in last year's survey, while none expect to reduce spending. Overall, the report points to slowing but still-positive manufacturing growth, alongside persistent selling-price pressures and moderating optimism over the next six months.

FED

DALY (2027 voter): Said we are more likely than not to need more rate hikes, but still deliberating on timing, adds not in a posture of urgency and better to be thoughtful and deliberate. On CPI, said reassured by markets' initial 'robust' reaction to CPI data and described markets as calmer. Further, she said CPI showed gas prices are driving headline inflation, while core inflation remains sticky, as expected. Daly doesn’t know yet if inflation will come down as shocks abate or worsen if shocks persist. The 2027 voter noted that risks to above-target inflation remain elevated while a stable labour market means the Fed can focus on price stability.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 21 TICKS HIGHER AT 105-17

Yields continue to decline despite more hot inflation prints. At settlement, 2-year -4.9bps at 4.757%, 3-year -6.9bps at 4.844%, 5-year -9.1bps at 4.903%, 7-year -10.2bps at 4.989%, 10-year -10.1bps at 5.093%, 20-year -9.4bps at 5.482%, 30-year -9.5bps at 5.430%.

THE DAY: The move lower in UST yields continued on Thursday as the tech/AI rout extended into the APAC session overnight, with the KOSPI closing 7.5% lower.

During the US session, attention turned to economic data, with PPI coming in hotter than expected, while Retail Sales and the NY Fed Manufacturing survey also beat forecasts. Meanwhile, Jobless Claims were in line with expectations, while the Philly Fed survey disappointed.

Markets initially focused on the hotter PPI and stronger Retail Sales data, resulting in a brief spike in Treasury yields. However, the dip in T-note futures was swiftly bought as technology stocks remained under pressure, particularly in the Nasdaq, potentially supporting haven demand and helping T-notes climb to fresh session highs. As the technology sector subsequently began to recover, T-notes came under renewed selling pressure, ultimately settling off their session highs.

Despite another hotter-than-expected inflation print, money market pricing for an October Fed rate hike eased from Wednesday's levels, when markets assigned a roughly 50% probability of a 25bps increase. This has since fallen to around 30%, although Oxford Economics continues to expect hikes in both October and December following Thursday's data. Attention now turns to Fed Chair Warsh's remarks at the IMF overnight, with participants looking for his assessment of the latest inflation figures and any signals regarding upcoming policy decisions.

Supply

Notes

• US Treasury to sell USD 13bln of 20-year bonds on Oct 21st, to settle Oct 22nd; To sell USD 26bln of 5-year TIPS on Oct 22nd, to settle October 30th

Bills

• US sells 8-week bills at a high rate of 4.050%, B/C 2.26x; sells 4-week bills at a high rate of 4.000%, B/C 2.56x
• US to sell USD 95bln of 13-week bills and USD 82bln of 26-week bills on Oct 19th.
• US to sell USD 95bln of 6-week bills on Oct 20th

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 7.3bps (prev. 12.3bps), Dec 28.7bps (prev. 29.8bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 111bln (prev. USD 106bln) on October 14th
• SOFR at 3.88% (prev. 3.89%), volumes at USD 2.974tln (prev. USD 3tln) on October 14th
• NY Fed RRP op demand at USD 1.20bln (prev. 0.20bln) across 4 counterparties (prev. 2) on October 15th
• Treasury Buyback [Liquidity support, 20-30-year, max USD 6bln]: Accepts USD 6.0bln of USD 40.84bln offers; accepts 3 of 42 eligible securities

CRUDE

WTI (Z6) SETTLED USD 2.60 HIGHER AT USD 96.50/BBL; BRENT (X6) SETTLED USD 0.14 LOWER AT USD 105.92/BBL

WTI outperformed its Brent counterpart, rising over USD 2/bbl, while Brent was slightly lower. The move followed reports that the US is considering easing Russian shadow-fleet sanctions and the US suggesting a supplemental oil release to IEA nations with extra 100mln barrels all while the EIA weekly inventory confirmed a large crude stock draw. US commercial petroleum stocks declined 13.4mln barrels in the previous week, the largest draw since April, driven by draws in crude, diesel, and other products. Crude stocks themselves drew 8.557mln, much steeper than the expected -0.3mln, though less than the 11.2mln crude draw seen in Wednesday's private inventory report; the SPR was unchanged at 283mln. Meanwhile, Saudi Aramco is offering more spot crude oil cargoes into the European market for late October to mid-November delivery, according to reports, citing sources. Separately, Syria's Jabsa gas export pipeline was targeted by an attack resulting in a reported explosion and fire in one of the main gas transmission lines. WTI and Brent traded between USD 93.58-98.32/bbl and USD 103.37-106.40/bbl, respectively. EIA results W/W: Crude -8.557mln (exp. -0.3mln), Distillate -2.527mln (exp. -1.6mln), Gasoline 3.518mln (exp. -0.5mln), Production -300k bpd.

EQUITIES

CLOSES: SPX +0.34 at 7,745, NDX -0.05% at 29,936, DJI +1.08% at 51,178, RUT +1.37% at 2,767

SECTORS: Energy -1.55%, Technology -0.54%, Utilities -0.21%, Consumer staples +0.36%, Industrials +0.49%, Communication services +0.62%, Real estate +1%, Consumer discretionary +1.16%, Financials +1.39%, Materials +1.7%, Health +1.84%.

EUROPEAN CLOSES: Euro Stoxx 50 -0.31% at 6,171, Dax 40 +0.35% at 25,386, FTSE 100 +1.04% at 10,837, CAC 40 +0.78% at 7,935, FTSE MIB -0.68% at 49,418, IBEX 35 -0.22% at 19,189, PSI -0.44% at 9,374, SMI +1.49% at 14,341, AEX -0.40% at 1,133

STOCK SPECIFICS

• Magnificent Seven ETF (MAGS) / VanEck Semiconductor ETF (SMH) / Roundhill Memory ETF (DRAM): Under pressure after Anthropic's Q3 revenue reportedly fell short of bullish expectations.
• Nvidia (NVDA) CEO Huang said CoreWeave's (CRWV) cost of capital is actually decreasing. Cantor said "market is getting it wrong" on CoreWeave; buy the dip"'; Evercore sticks with an Outperform rating on CRWV.
• Walmart (WMT): Upgraded at Deutsche Bank to 'Buy' from 'Hold'.
• Charles Schwab (SCHW): EPS and revenue beat failed to impress.
• PNC Financial Services (PNC): Q3 NII missed expectations.
• Rocket Lab (RKLB): Neutron launch delayed to 2027.
• ManpowerGroup (MAN): Q4 guidance missed expectations; announced CEO transition.
• FMC Corporation (FMC): Disappointing preliminary Q3 guidance.
• Commercial Metals Company (CMC): Earnings beat expectations.
• Penske Automotive Group (PAG): To go private via Motown Acquisition Corp. at USD 212/shr in cash.
• Google (GOOGL) Quantum AI published a breakthrough in quantum computing.
• Meta (META) announced Muse Spark Open, most capable US open-weight model to date.
• KFC (YUM) is moving to ditch Pepsi (PEP) for Coca-Cola (KO) in thousands of restaurants, WSJ reports.

FX

USD weakness continued as AI concerns lingered, pressuring both tech stocks and US yields despite a hot PPI report prompting upward revisions to September PCE expectations. CHF, GBP and EUR all outperformed against the USD, while US tech-led equity weakness spread to Asian markets. The hotter-than-expected headline PPI reading was also driven by higher energy prices, while the core reading exceeded forecasts. Meanwhile, Retail Sales beat on the headline, albeit driven by sales at gasoline stations amid higher energy prices; claims were little changed W/W, and regional data was mixed (NY Fed beat, Philly missed). DXY now trades around 102.08, down from Wednesday's YTD high of 102.945.

GBP was one of today's better performers ahead of the October budget. The Guardian reported that the UK Chancellor is set to raise taxes on banks, potentially reversing previous cuts to the bank surcharge, which could raise more than GBP 2bln a year. UK GDP was better than expected in August, rising 0.1% (exp. -0.1%). At the BoE, Greene reiterated that she sees risks of second-round effects as “pretty significant”, whilst Breeden questioned whether the energy shock is gone or just delayed. The remarks highlighted a stark contrast between the two MPC members.

AUD sank after a weak jobs report, which saw employment unexpectedly fall by 39.3k (exp. +20k, prev. +39.5k). The headline was driven by a 73.7k decline in part-time employment, with the unemployment rate ticking higher to 4.7% from 4.6%, despite the participation rate falling to 66.8% from 67.1%. AUD/USD hit lows of 0.6894, a level last seen in July.