SIFs, Treasurys Move Higher

STOCK INDEX FUTURES

Stock index futures moved higher ahead of the University of Michigan’s preliminary consumer sentiment and inflation expectations surveys out later this morning. Gains in the market this week have largely been driven by AI trade, while the ongoing government shutdown continues to delay key economic reports ahead of the Fed’s meeting later in the month, where markets are expecting the central bank to cut rates. China announced new port fees on US chips and began an antitrust investigation in Qualcomm, ahead of President Trump and Xi Jinping’s expected meeting in a couple weeks. Beijing’s Transport Ministry announced Friday that it will begin collecting fees on vessels owned by US companies and individuals, as well as those built in America, starting October 14. China’s market regulator announced an anti-monopoly investigation into Qualcomm over its purchase of Autotalks, which led shares of the tech company to fall more than 4% ahead of the open.

Earnings season will begin next week, and performance is expected to be softer than previous quarters as tariffs are expected to take a bite out of companies bottom lines.

CURRENCY FUTURES

US DOLLAR: The USD index edged lower in overnight trade following a strong week, supported by dimmed chances of a rate hike in Japan and political turmoil in France. The Fed’s September meeting minutes, alongside diverging comments from several Fed officials this week signal that there may be more divide over how the Fed should move than initially thought. Despite all FOMC members voting for a rate cut, several officials have signaled that inflation risks appear too strong, while other officials have been downplaying inflation risks and signaled that the labor market needs policy easing support. Fed Funds futures are pricing in a 94.6% chance of a rate cut in October and an 83.4% chance of a cut following in December.

EURO: The euro moved higher but remained near two-month lows as political turmoil in France has heavily weighed on the currency this week, which has seen its biggest weekly decline in 11 months. President Macron is expected to appoint a new prime minister soon. The newly elected will need to overcome a deeply challenging budget crisis. If Macron finds a replacement, snap elections in France are likely to be avoided and could help provide a floor to the euro. Discussions with opposition parties also suggest that the government could pass a new budget by year-end, although the outlook is uncertain. Also weighing on the euro was a weak set of industrial data out of the eurozone’s largest economy, Germany. Germany’s exports fell 0.5% in August due to weak demand in EU countries and the US; industrial output and factory orders figures also showed declines in activity as well. Elsewhere, Italian industrial production figures disappointed, with industrial production dropping 2.4% month-over-month in August, well below expectations of a 0.4% drop. The drop in the reading is attributed to lower output across all major goods. On the central bank side, minutes from the European Central Bank’s September meeting signaled that the bank intends to keep interest rates steady for the medium-term future.

BRITISH POUND: The pound is little changed against the dollar following a sharp drop on Thursday, despite hawkish comments from Bank of England policymakers Catherine Mann and Chief Economist Huw Pill. Mann suggested that rates could stay higher for longer, saying that inflation expectations in the UK are too high. Pill urged “conservative central banking,” stressing the need to prioritize inflation control over the need to cut rates to support growth. Both Pill and Mann voted with the majority to keep interest rates unchanged at the last BoE meeting in September. Markets will monitor Finance Minister Rachel Reeves’s ability to balance self-imposed fiscal rules and economic growth. Strong taxes could present a downside for the sterling and could weigh on economic growth. Markets are not expecting a rate cut from the BoE until April of next year.

JAPANESE YEN: The yen moved higher following political developments in which the Komeito Party informed the Liberal Democratic Party that it would be withdrawing from the ruling coalition after new LDP President Sanae Takaichi “failed to provide sufficient answers regarding political funding issues.” The breakup heightened political uncertainty and also led markets to cast doubts for increased fiscal spending, which has weighed on the yen this week. Data released overnight showed that producer prices in Japan rose more than expected in September, with producer prices rising 0.3%, above an expected 0.1% rise. Expectations over rate hikes from the Bank of Japan have been dampened following the election of Takaichi and soft economic data earlier in the week. Real wages in Japan fell 1.4% on a yearly basis, marking the eighth consecutive monthly decline as inflation continues to outpace wage growth. The figures, alongside Takaichi’s appointment, complicate the BoJ’s rate hike path. Markets now see less than a 50% chance of a rate hike in December.

AUSTRALIAN DOLLAR: The Australian dollar is higher, gaining support from a weaker dollar. Reserve Bank of Australia Governor Michele Bullock on Friday reiterated concerns over sticky inflation and emphasized that policy would be driven by data. Labor, inflation, and household spending data are all due before the central bank’s next meeting on November 4. Q3 inflation in Australia is expected to move higher; the Melbourne Institute’s inflation expectations survey for October showed inflation expectations edged higher to 4.8% from 4.7%. Meanwhile, the MI’s monthly inflation gauge showed a 0.4% increase in September, up from a 0.3% drop in August. Expectations that inflation could prove hotter than expected alongside hawkish comments out of the RBA have led markets to trim bets of a November rate cut out of the central bank. Although, the upcoming data could present an opportunity for rate cuts if inflation and household spending figures prove to be weak.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve as a global rally in government bonds helped support prices. The WSJ reported that key Bureau of Labor Statistics employees will return to work to produce October’s CPI report, given that it is necessary to calculate social security benefits. Overnight, San Francisco Fed President Mary Daly said that despite higher inflation, the softening in the labor market could be more worrisome if the Fed does not move to cut rates.

Meanwhile, on Thursday, New York Fed President John Williams signaled that he would vote to cut rates at the Fed’s meeting later in October, while Fed Governor Michael Barr offered a hawkish opinion on his outlook for the Fed. Williams emphasized that downside risks to the labor market were more prevalent than upside risks to inflation. Williams also added that he did not view tariffs as inflationary as some had expected and did not see many near-term upside risks as well. Barr leaned into the risks of inflation despite a “roughly balanced” labor market. Barr said the Fed needed to be cautious about adjusting policy in order to gather more data and update forecasts in an effort to better assess the balance of risks. Barr reiterated Powell’s remarks that there is no risk-free path on monetary policy.

Minutes from September’s Fed meeting showed that most participants considered it likely that further policy easing would be appropriate through the remainder of the year. However, some policymakers remain worried over the upside risks to inflation and signaled they would avoid rate cuts. Regardless, most officials still emphasized that upside risks to inflation remain tilted to the upside. Underscoring upside risks to inflation was Tuesday’s New York Fed’s consumer inflation expectations survey, which saw near-term inflation expectations rise to 3.4% in September, the highest level in five months.

Thursday’s 30-year bond auction saw decent demand with slightly below-average bidding. The auction fetched a bid-to-cover ratio of 2.38 vs. a six-auction average of 2.42. Indirects took 64.5% of the take vs. the six-auction average of 62.7%; directs took home 26.9% vs. the six-auction average of 24.7%, leaving dealers with 8.7% vs. the six-auction average of 9.7%. The auction rounds out this week’s refunding package, which saw mixed results at the 10-year note auction and solid results at the three-year.

The spread between the two- and 10-year yields fell to 52.20 bps from 54.50 bps on Thursday, while the 2-year yield, which reflects interest rate expectations, lowered to 3.568%.

Interested in more futures markets?  Explore our Market Dashboards here.