US-China Truce Extended, but Boeing Order Hopes Fade

Summary

Hopes dimmed for a new Chinese Boeing order as Xi Jinping began a Washington state visit, though Treasury Secretary Scott Bessent said the US-China trade truce would be extended. Japan's benchmark bond yield surged to a 30-year high amid Treasury market woes, while a weaker yen lifted the Nikkei as other Asian shares fell. S&P 500, FTSE and DAX futures pointed modestly lower after Fed Governor Barr signalled more rate hikes may be needed.

Equities

The FTSE 100 finished little changed at 10,705.26 points on Wednesday as gains in energy shares offset losses across most other sectors. The FTSE 250 fell 0.7%, its steepest one-day decline in nearly two weeks, while oil prices climbed back above $100 a barrel and government bond yields rose.

BP closed 2.7% higher on Wednesday and Shell gained about 2% as the UK energy sector rose 2.2%. Rolls-Royce added 1.4%, helping the aerospace and defence sector rise by the same amount.

AstraZeneca fell 1.9% and GSK lost 1.1% on Wednesday as pharmaceutical shares dropped 1.5%. JD Sports was the FTSE 100’s largest faller, sliding 5.7% after reporting an approximately 20% decline in first-half profit, reflecting weakness in its North American business.

Pollen Street jumped 12.5% on Wednesday, topping the FTSE 250. Reuters reported that the private capital firm had explored strategic options, including a potential sale, as it looks to expand its asset management business.

In the US, the S&P 500 closed 0.75% lower at 7,706.05 points on Wednesday. The Nasdaq fell 1.13% to 26,936.04, while the Dow Jones Industrial Average dropped 0.68% to 51,511.59 as Treasury yields climbed, with the 10-year yield reaching its highest level since 2007.

Alphabet shares fell 3.8% on Wednesday, while Amazon dropped 2.2% after blocking Meta’s Muse AI assistant from its shopping platform. Nvidia declined 1.5%, contributing to a 1.2% fall in the PHLX semiconductor index.

Meta gained 1% on Wednesday, taking its rise for the week to 12% following a positive reception for Muse. Travel stocks came under heavier pressure, with Expedia and Airbnb both falling more than 7%.

Paychex dropped 8.8% on Wednesday after its largest business segment missed first-quarter revenue estimates. Cracker Barrel moved in the opposite direction, rising 4.5% after the restaurant chain beat fourth-quarter sales estimates.

Forex & Commodities

The US dollar held near a two-month high early on Thursday, with the dollar index at 101.1 after stronger US economic data and rising Treasury yields. Sterling remained near a three-month low at $1.324, while the euro traded near a two-month low at $1.138.

The yen recovered to 157.8 per dollar after Japan’s finance minister reiterated that the principles governing July’s coordinated Japan-US currency intervention remain in place. The Australian dollar slipped to $0.7036, while the New Zealand dollar was unchanged at $0.5675.

US business activity reached a five-year high in September, with stronger demand straining supply chains and increasing inflationary pressures. A poorly received Treasury auction pushed five-year yields above 5% for the first time since 2007.

Federal Reserve Governor Michael Barr indicated on Wednesday that further interest rate increases would probably be necessary. Traders subsequently raised the probability of another October rate hike to nearly 70%, compared with 50% a week earlier.

Gold was little changed early on Thursday at $4,291 per ounce, as expectations of further Federal Reserve tightening weighed against easing oil prices. The precious metal remained under pressure from the stronger dollar and rising Treasury yields.

Oil prices retreated on Thursday following Wednesday’s nearly 4% rally, after Iran indicated it remained open to diplomatic negotiations with the US. Brent crude fell 0.9% to $102.2 a barrel, while WTI declined 0.8% to $91.39.

Tehran is reviewing Washington’s response to its peace proposals, prioritising the removal of the US naval blockade and reopening of the Strait of Hormuz.