Written Commentary
CURRENCY FUTURES
The June US dollar index is down nearly a percent as growing concerns about the fiscal outlook of the US weigh on the greenback, which fell against most major currencies. On Friday, a large global credit rating agency downgraded the US’s credit rating from AAA to AA1, citing rising government debt and a widening budget deficit. This added to concerns over new tax legislation that is making its way through Congress, which includes hundreds of billions in new tax cuts without any corresponding offsets in spending. The June US dollar index is trading just above the $100 level.
Post-Brexit trade talks will be held between the UK and the EU this week in what is a busy week for UK economic data. Inflation data for April is due Wednesday, with a rise expected due to higher energy prices and increased taxes on businesses. Strong inflation data could add to expectations that the Bank of England will slow down its rate-cutting cycle. June pound futures are trading just under $1.34.
Euro futures are higher on dollar weakness. Eurozone CPI inflation figures came in line with expectations, with month-over-month inflation growth of 0.6% and yearly inflation at 2.2%. The EU also lowered its growth forecast by half a percent for the year ending 2025, citing higher US tariffs impacting exports. German PPI figures are due at 1:00 a.m. Central Time and are expected to show a monthly contraction of 0.3%. June euro futures are trading just under $1.13.
The Royal Bank of Australia announces its interest rate decision tonight at 11:30 p.m. Central Time. The bank is expected to cut rates by 25 bps to 3.85%, as both headline and core inflation have fallen in the bank’s 2%-3% range. Recent strong jobs and wage growth data have sparked concerns about persistent inflation and may temper the amount of easing this year.
Canadian CPI figures are due Tuesday at 7:30 a.m. Central Time.
INTEREST RATE MARKET FUTURES
Futures are lower across the curve after Friday’s credit rating cut due to rising government debt. Despite the recent rating downgrade, significant selling of US Treasurys is unlikely, as most investment mandates do not require AAA ratings for US Treasurys. The rating cut does not come as a surprise, as two other ratings firms had previously downgraded the US’s rating, and the present budgetary situation has largely been priced in over recent days.
The 10-year treasury yield climbed to over 4.54%, and the 30-year yield is above 5% as the curve steepened following the rating downgrade. The spread between the two- and 10-year yields increased to 52 bps as the curve steepened.
With the limited economic data this week, focus will shift to the nine scheduled speeches from Fed members, although it remains to be seen what new information investors will be able to gather from these speeches.
STOCK INDEX FUTURES
Futures are lower across all indexes as investors digest a recent downgrade of US credit and assess the fiscal outlook of the US’s growing debt situation.
Trade headlines will be in focus this week, as it is a relatively quiet week for economic data in the US. President Trump on Friday said that the US will set tariff rates for its trading partners in the next few weeks. Most companies have reported first quarter earnings, with a couple of major retailers set to end the Q1 earnings season this week.
On Thursday, the purchasing managers index will give an up-to-date indication of the health of the US manufacturing and services sectors in the US, with this data most likely feeling the impact from tariffs. Most official US data has suggested that the economy is holding up well, although the data is backwards-looking and has not properly captured the impact of tariffs. Although many high tariffs have been scaled back, tariffs of 10% or more remain and are very high by historical standards.
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