Nvidia Earnings in Spotlight

STOCK INDEX FUTURES

Stock index futures are little changed as markets await Nvidia’s earnings report, which will arrive after the bell. Investors are expecting the company to post record high revenue and adjusted profit for the second quarter. Investors will also be scrutinizing any signs of fallout from President Trump’s curbs on chip sales to China, which Nvidia forecasted to bring an $8 billion hit to its bottom line in Q2. The earnings report will also serve as a test for AI trade, which in recent days has seen a large consolidation after many investors feared the rally was overdone.

On the trade front, the 50% tariffs on India kicked in, while the European Union will seek to fast-track legislation to remove all tariffs on US industrial goods, a demand from President Trump for the US to lower its tariffs on automobiles. EU cars and auto parts currently face a 27.5% tariff on exports to the US. If the EU proposes the legislation by the end of the month, then the 15% tariff rate on European cars will be backdated to Aug. 1. Automobiles are one of the bloc’s most significant exports to the US, with Germany alone exporting $34.9 billion of new cars and parts to the US in 2024.

The indexes traded quietly on Tuesday, showing little concern regarding President Trump’s move to fire Fed Governor Lisa Cook, signaling that the move will have little effect on policy setting in the near term and that investors were caught between concerns over politicization of policy and the payoffs for markets. President Trump said late Monday that there was “sufficient cause” to fire Cook, a Biden-nominated governor, over allegations of mortgage fraud. Cook responded by saying Trump didn’t have the authority to fire her and filed a lawsuit against the president.

Following Nvidia’s earnings after the bell, focus will shift to Friday’s highly anticipated PCE inflation data, which will be a key piece of data in determining whether or not the Fed may cut rates in September. The second estimate of second-quarter GDP and weekly jobless claims data are due on Thursday, and the University of Michigan’s final consumer survey for August is set for release on Friday.

CURRENCY FUTURES

The USD index is higher as markets await Friday’s PCE inflation data and weigh the potential impacts of President Trump’s firing of Fed Governor Cook. Cook’s lawyer later said she would file a lawsuit to prevent her ouster, kicking off what could be a protracted legal fight. Markets were relatively muted on Tuesday, with investors caught between the concerns over politicization of policy, PCE data at the end of the week, and nonfarm payroll figures due at the end of the month. Cook’s potential ouster could heighten the likelihood of earlier interest rate cuts, with Trump asserting greater influence over the central bank. While the news is bearish for the dollar, uncertainty overseas in Europe regarding France’s government limited losses against the euro. Markets are pricing in an 87% chance of a 25 bps rate cut in September ahead of Friday’s PCE data.

Euro futures are lower, pressured by a stronger dollar. The EU will seek to fast-track legislation to remove all tariffs on US industrial goods in order for the US to lower its tariffs on automobiles. EU cars and auto parts currently face a 27.5% tariff on exports to the US. If legislation is proposed by the end of the month, then the 15% tariff rate on European cars will be backdated to Aug. 1. Automobiles are one of the bloc’s most significant exports to the US, with Germany alone exporting $34.9 billion of new cars and parts to the US in 2024. Political developments in France make it look increasingly likely that the minority government will be ousted. The developments come as French consumer confidence in August fell, with the index dropping to 87 from 88. Germany’s GfK consumer climate fell as well, with the index slipping to -23.6 from a previous -21.7. The European Union and Italy will release consumer and business confidence data for August on Thursday. These come after recent better-than-expected provisional August purchasing managers’ surveys for Germany, France, and the eurozone, and investors will be looking to see whether this trend is replicated elsewhere. Friday will be a big day for eurozone data. Provisional inflation figures for August from Germany, France, Spain, and Italy will be released, alongside German labor market data for August. German retail sales for July are also due Friday, plus a string of data from France, including July consumer spending, producer prices, and second-quarter jobs figures. Italy will also publish second-quarter GDP.

British pound futures are lower despite producer price index data that showed output inflation rose to a two-year high of 1.9%. Bank of England Monetary Policy Committee member Catherine Mann stated Tuesday that she supports maintaining the Bank Rate at its current level for an extended period but remains prepared to implement aggressive rate cuts should significant downside risks to economic growth emerge. Mann also pointed out that wage growth in the UK is exceeding levels that can be easily justified by the Bank of England’s labor market models. She noted that the projected pay increases of 3.5% to 4.0% by year-end are too elevated to support a return of inflation to the 2% target. Despite this, Man reiterated her desire to avoid raising interest rates, as it would weaken an already fragile economy. Money markets now see only around a 36% probability of a quarter-point reduction this year, and the next cut is likely priced in for spring 2026. This comes after a hot inflation print last week, which saw inflation rise to 3.8%, although many of the price pressures are expected to be one-off. Still, the inflation remains well above the Bank of England’s target, and in its most recent policy meeting, policymakers signaled they were more concerned with rising inflation than they were with supporting the economy.

Japanese yen futures are lower as markets look ahead to Tokyo inflation figures, considered the leading gauge of nationwide trends, for more signals on the inflation front as the BoJ looks to raise interest rates in the near future. Speaking at the Federal Reserve’s Jackson Hole conference on Saturday, Bank of Japan Governor Kazuo Ueda said wages in Japan are expected to rise further amid a tightening labor market, signaling confidence that conditions for another interest rate hike are coming together. Following stronger-than-expected second-quarter growth, investors will look to the next batch of data for confirmation of the economy’s health. Elsewhere on the data front, retail sales, labor market, and industrial production data are due for release later in the week. Strong data here could fuel expectations on when the Bank of Japan will deliver a rate hike, which could come as early as October.

Australian dollar futures are lower against the dollar despite a surprisingly high reading on consumer prices. The monthly reading of consumer prices showed an annual increase of 2.8% in July, up from 1.9% in June and far above the median forecast of 2.3%. Part of the jump was due to the timing of electricity rebates, which would unwind in August and likely pull the index down again. However, the trimmed mean measure of core inflation also rose sharply to 2.7%, from 2.1%, and that excluded electricity. Despite the high reading, the measure is only a partial read on inflation, and the Reserve Bank of Australia is likely to wait until Q3 inflation before making any policy changes. Odds of a rate cut in September slipped from 35% to 25% following the data release. The CPI report for the third quarter is due on October 28. Markets price around a 93% chance of a quarter-point cut to 3.35% in November.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve as markets await PCE inflation data on Friday and as President Trump’s effort to remove Fed Governor Lisa Cook remains in focus. The Treasury market had a relatively muted reaction – apart from the 30-year bond – on Tuesday to President Trump’s push to fire Fed Governor Lisa Cook. If the president is successful in his attempt to oust Cook, that would open the door for a Trump-appointee majority board that would have a dovish tilt. The prospect of monetary policy that could be looser than necessary  has raised concerns from bond investors that the board could lose its grip on inflation, sending short-term yields lower while longer-term yields rise as inflation expectations increase. The closely watched yield curve comparing two- and 10-year Treasury yields steepened to its highest since April intraday on Tuesday, while the premium of 30-year yields over two-year yields surged to its highest since early 2022.

Tuesday’s $69 billion two-year note auction was met with aggressive bidding and high non-dealer demand. The auction fetched a bid-to-cover ratio of 2.69 vs. a six-auction average of 2.58. Indirect bids totaled 57.1% vs. the 66.1% average, direct bids took 33.2% vs. the average of 23.0%, leaving dealers with a 9.7% take, the least amount since February. Attention will now shift to today’s $70 billion auction in five-year notes and $44 billion in seven-year notes on Thursday.

Friday’s July PCE price index will be closely watched. Stronger inflation could reinforce expectations of a slower easing path, pushing expectations of a September cut to October or later in the year and providing support for higher yields, while a softer reading should weigh on yields. Fed funds futures are pricing an 87% chance that the Fed will cut rates by 25 bps in September. There is still a high degree of uncertainty when it comes to the interest rate path, and recent PMI and PPI data has shown significant indications that inflation could persist for the coming months and peak in the fall.

The spread between the two- and 10-year yields rose to 63 bps from 57.2 bps on Tuesday.

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