Stocks and bonds fell as higher oil prices intensified inflation concerns, further supported by US business activity data showing the fastest growth since 2021. Brent crude surpassed $101, pushing bets that the Federal Reserve would continue raising rates. Fed Governor Michael Barr stated that further tightening is likely necessary to bring inflation to target. Treasury two-year yields climbed 12 basis points to 4.87%, and the dollar reached its highest level since July.
Geopolitical developments remained a key focus, particularly after President Donald Trump indicated progress in US discussions with Iran. Iranian President Masoud Pezeshkian, speaking at the United Nations General Assembly, expressed readiness for talks but rejected any language of force. Despite hopes for a diplomatic breakthrough to end the conflict and potentially reopen the Strait of Hormuz, the concrete progress of these talks remains uncertain, according to Ian Lyngen of BMO Capital Markets.
The S&P Global flash US composite purchasing managers index rose to 58.4 in September, marking the highest level since July 2021. Employment surged at a rate not seen in over four years, and input prices grew at the fastest pace since 2022. Businesses largely attributed these increases to higher fuel and transport costs, though wage increases were also noted. Ulrike Hoffmann-Burchardi of UBS Chief Investment Office noted that while their base case anticipates limited energy disruption, the conflict could escalate and strain energy supplies.
The S&P 500 dropped 0.5%, the Nasdaq 100 fell 1%, and the Dow Jones Industrial Average declined 0.2%. In the bond market, the yield on 10-year Treasuries advanced 10 basis points to 5.06%. West Texas Intermediate crude rose 1.7% to $92.09 per barrel, while spot gold fell 1.7% to $4,287.67 an ounce.
Separately, the US sold $70 billion of 5-year notes with weak demand, and a 2-year FRN auction for $28 billion also met with weak demand. The Treasury also announced a maximum size of $6 billion for Thursday's 20-30 year bond buyback operation. Earlier concerns about a potential US diesel export ban, which contributed to Treasury declines, were later tempered when a White House official denied the report.
