Oil drops 2.6% as Gulf exports hit a wartime high and Washington offers SPR barrels, but the 10-year Treasury yield climbs to about 5.29% while Iran waits on a formal US reply
The oil market got something it has been short of for seven months: evidence that supply is actually coming back. Satellite imagery confirmed what analysts called a "major operational recovery" at Saudi Arabia's Red Sea terminals at Yanbu and Muajjiz, with about 12.5 million barrels loaded onto nine tankers between Saturday and Monday now that the East-West pipeline is running again. Crude exports from Middle East producers rebounded to roughly 16.3 million barrels a day in September, the highest since the US-Israeli war on Iran began in late February (the lower figure of about 12.8 million cited in yesterday's brief referred to a narrower Gulf measure). Washington added to the supply story: the Department of Energy offered up to 40 million barrels from the Strategic Petroleum Reserve, although a similar offer in June drew commitments for only about 500,000 barrels, and the White House is considering wider sales of red-dyed diesel as an alternative to the diesel export ban the market has feared. Reports that Trump is willing to test sanctions relief for Russia (see below) also weighed on prices.
The result was a sharp reversal of Tuesday morning's Asian rally, which had taken Brent above $107. Brent settled down 2.6% at $102.59/bbl, at the session low, and WTI fell about 3.5% to $89.38. Even so, Brent is on track for a monthly gain of roughly 13% and WTI about 4%. In early Asian trading on Wednesday, Brent edged up 0.5% to about $103.10 while WTI was flat near $89.40.
Diplomacy itself did not move. Foreign Minister Abbas Araghchi left New York on Tuesday saying he still expected an official US answer to Tehran's revised Hormuz plan through the Qatari mediators by the end of the day. "Despite what the US president said," he told state broadcaster IRIB, "we were waiting for the official US response through the mediators." The gap is still about order: the US wants the nuclear programme dealt with alongside everything else, while Iran wants the strait reopened first, then sanctions relief, then nuclear talks. Trump called reports that he might relax sanctions a "hoax." Tehran also hardened its rhetoric. Parliament speaker and chief negotiator Mohammad Bagher Ghalibaf warned that "no infrastructure will remain safe" in the region if Iran's security is not guaranteed, adding that if Iran cannot sell its oil, neither will its neighbours. No formal US reply had been reported by Wednesday morning in Europe.
02Stock market & economy
Cheaper oil did nothing for the bond market, and stocks slipped for a second day. The S&P 500 fell 0.17% to 7,670.84, the Nasdaq Composite eased 0.09% to 26,797.54, and the Dow lost 131.59 points, or 0.26%, to 51,349.92, with all three closing well off their lows. The 10-year Treasury yield rose about 4-5 basis points to around 5.28-5.29%, its highest since June 2007, and the 30-year reached about 5.62%, its highest since 2002 after six straight daily increases. The 2-year held near 4.9%. Mortgage rates are now approaching 7.6%, the highest since late 2023. That bonds sold off on a day when oil fell 2.6% is worth noting: it suggests that heavy government and corporate borrowing, not just the oil-driven inflation outlook, is pushing up the long end.
Fed speakers kept the October hike on the table without committing to it. New York Fed President John Williams said further increases could be appropriate but saw little urgency to rush the next one, a slightly softer tone than markets had braced for. Governor Michael Barr also left the door open to more hikes, and Chicago Fed President Austan Goolsbee raised concerns about how persistent inflation is proving. The data pointed to a weakening consumer and a cooling labour market. The Conference Board's consumer confidence index fell 6.7 points to 81.9, its lowest since 2014 and well below the 89.2 expected (see the closing section). August job openings fell to about 7.1 million, below the roughly 7.2 million forecast. Gold stabilised after Monday's slide to a seven-week low, trading back around $4,140-4,210/oz depending on the source and time.
Single stocks moved sharply. Meta rose 3.3% after an AI services announcement, and Carnival jumped 13% after raising its full-year outlook. Fair Isaac plunged 26.5% on concerns about an overhaul of credit scoring, and Apple fell on worries about the threat AI poses to its services profits. Micron gained about 1% ahead of its results after Wednesday's close, where the market expects revenue of about $52 billion. Wednesday also brings August PCE inflation at 14:30 CET, with consensus at 0.4% month-on-month for the headline and 0.3% for core. US futures were little changed overnight. In Asia, Japan's Nikkei rose about 1.4% to 66,499 and the wider region was mostly higher, while Korea's Kospi slipped 0.3%.
Europe split in two. The AEX gained 0.4% to a record close of 1,120.19, just above the previous closing high of 1,119.59, after touching a new intraday peak of about 1,125. Chip stocks did all the work, with Besi, ASMI and ASML each rising more than 4% on renewed AI optimism. The wider STOXX 600 slipped 0.1%, reversing earlier gains as high bond yields weighed, with energy and food and beverage stocks down about 1.4% each. Lindt fell 8.7% after its second sales-forecast cut of the year, while Julius Baer rose 7.2% after Swiss regulator FINMA closed its enforcement proceedings.
For the unhedged USD sleeve (MSCI World ETF, S&P 500 ETF, High Dividend Yield ETF), Tuesday showed that a lower oil price is not enough on its own: with the 10-year near 5.3%, long-duration tech remains under pressure, and the S&P 500 has now given back its September gains. High Dividend Yield ETF was the weakest link on the day as its energy holdings fell with crude, the reverse of Monday. Today's PCE figure and Micron's results are the two big near-term tests, the first for rates and the second for the AI trade that dominates MSCI World ETF and S&P 500 ETF. For AEX index ETF, the record close shows how much the Amsterdam index now depends on its chip names, which offset the drag from Shell as oil fell. For EURO STOXX 50 ETF, cheaper Brent is good news for eurozone inflation after the ECB's hike to a 2.5% deposit rate on 10 September, but Treasury yields pulling Bund yields higher kept the broader European market flat.
03Also in the news
According to The Atlantic, Trump has agreed to test a plan from his special envoy John Coale to trade the release of Russian political prisoners for an easing of US sanctions on the Russian economy. The approach has echoes of Cold War prisoner diplomacy and is likely to anger Kyiv, European allies and some members of Congress, since it would give Moscow new revenue without any movement on a ceasefire. It comes after the Kremlin dismissed the US-floated energy ceasefire and as Zelensky warns of a new Russian mobilisation wave. For European portfolios, sanctions relief could eventually mean more Russian oil on the market, which is part of why crude fell on Tuesday, but it does nothing yet to bring a winter energy truce closer.
04Off the beaten path
why stocks are near records while consumers are at their gloomiest since 2014
Tuesday put two numbers side by side that seem to contradict each other. The AEX closed at a record and the S&P 500 is still not far from its highs, yet the Conference Board's consumer confidence index fell to 81.9, its lowest in twelve years. Last Friday's University of Michigan reading of 48.1 told the same story. People are unusually downbeat, and so far markets have barely cared.
Part of the answer is what the surveys actually measure. The Conference Board splits its index in two. The Present Situation Index, which asks about current business and job conditions, is 109.3, lower but still reasonably solid. The Expectations Index, which asks about the next six months, fell to 63.6, its third monthly decline and well below the 80 level the Conference Board says has historically signalled a recession ahead. In other words, people are mostly worried about what might happen, not describing a collapse happening now. Mentions of prices, and fuel prices in particular, hit a record in the survey, which fits with Brent's roughly 13% rise this month and a 10-year yield near 5.3% pushing mortgage rates toward 7.6%. Sentiment readings react strongly to prices at the pump and to headlines, and historically they have been a weak guide to what consumers actually spend. Carnival raising its outlook on Tuesday is a reminder that spending has held up better than mood.
The other part is what the stock indices are made of. The S&P 500 and MSCI World are dominated by a handful of AI-exposed mega-caps whose earnings depend more on corporate capital spending than on household sentiment, and the AEX's record was driven almost entirely by ASML, ASMI and Besi. Consumer-facing stocks have been doing much worse under the surface. For a portfolio of broad index ETFs, the practical point is that the headline index levels can hide a weakening consumer for a long time. The things that would close the gap are a clear crack in spending or jobs, and Friday's September payrolls report is the next chance to see one. A softer number would be bad news for consumer stocks but, by lowering the odds of an October Fed hike, could actually help the rate-sensitive parts of the market.
Compiled from Yahoo Finance, CNBC, Bloomberg, Saxo, investingLive, The Rio Times, Nation Thailand, Trading Economics, BigGo Finance, Al Jazeera, The Manila Times (via AFP), Khaleej Times, The Atlantic (via EADaily and Mezha), Quartz, The Conference Board, De Aandeelhouder, CashCow, and HDFC Sky. This is a news summary, not investment advice — no position sizing or timing recommendations are implied.