GDP and Greenland Move Markets

STOCK INDEX FUTURES

The indexes are higher, but experienced a knee-jerk reaction to an upward revision in GDP data, while President Trump’s U-turn on Greenland lifted sentiment. US GDP growth was revised higher to an annualized rate of 4.4% in the third quarter of 2025, primarily reflecting upward revisions to exports and investment, although consumer spending was revised slightly downward. Stocks enjoyed a nice bounce on Wednesday after President Trump said he had reached a deal with NATO Secretary-General Mark Rutte over Greenland and would not be imposing tariffs on several European allies. Details of the framework are not yet known, but markets took a sigh of breath from the deescalation, as focus shifts back to economic data and the outlook for the Fed.

On the corporate font, Intel will report quarterly results after the bell as big tech spending on AI and microchips remain in focus as investors scour earnings reports for signals on demand. Procter & Gamble and GE Aerospace are also set to report quarterly earnings today. Also on the docket for today will be the Fed’s preferred inflation gauge, the PCE index. The data could help shape interest rate expectations from the Fed after this morning’s hot GDP reading quelled some bets for easing this year. Elsewhere on the data front, corporate profits in the rose by 4.7% in the third quarter of 2025, above preliminary estimates of 4.4%. Net cash flow with inventory valuation adjustment rose 6% (vs 5.8% in the early estimate), undistributed profits jumped 14.9% (vs 14%), and net dividends went up by 0.1% (the same as in the preliminary release). Compared to the corresponding period of the previous year, corporate profits surged 10.8%.

Weekly initial jobless claims came in at 200,000, below forecasts for a reading of 209,000.

CURRENCY FUTURES

US DOLLAR: The USD index is lower after concerns over Greenland eased, lending the focus back to economic data. Third quarter GDP revisions surprised to the upside, which saw the dollar index jump sharply from 98.41 to 98.755 as the hot reading reinforced the narrative that the Fed is likely to stand pat on rates for the near-term as markets await November PCE data later in the morning. President Trump announced on Wednesday that he would not impose tariffs on several European nations after he reached the “framework of a future deal” with NATO Secretary-General Mark Rutte, which helped spark a mild recovery in the greenback after it had tanked during the previous session.

EURO: The euro advanced strongly against the dollar alongside a rebound in European stocks, with the STOXX 50 and 600 both climbing more than 1% as sentiment was lifted after President Trump announced he would cancel plans to implement tariffs on several European allies. Trump had previously threatened several European allies with 10% tariffs until a deal for Greenland is reached. Meeting minutes from the ECB’s policy meeting in December were unsurprising, and in line with prior guidance from officials. ECB policymakers noted that the central bank could afford to be patient, but stressed that this should not be interpreted as hesitancy to act or an asymmetric approach. The ECB views its monetary policy stance as appropriate, though not static. Officials observed that economic activity had proven more resilient than expected, unemployment remained at historically low levels, and the inflation outlook was favorable, with prices projected to stay around target over the forecast horizon.

BRITISH POUND: The pound is slipped against the dollar following the release of revised Q3 GDP figures out of the US. Recent economic data out of the UK has painted somewhat of a mixed picture. Inflation picked up more than expected in December, while labor data reflected a weak, yet stabilized labor market. However, for policymakers at the Bank of England, the ease in labor market conditions – especially in regard to wage growth, will ease worries over persistent inflation. Still, the stronger inflation data does present risks that policy easing could come slower than expected in the first half of 2026. Money markets are favorable to a rate cut from the BoE come April or July, with July’s meeting being fully priced in.

JAPANESE YEN: The yen remained under pressure from Prime Minister Takaichi’s call for snap elections on February 8. The move has unnerved investors in Japanese sovereign bonds about the country’s fragile public finances, although bonds have recovered slightly from their selloff after Finance Minister Satsuki Katayama called for calm in the markets . Takaichi’s proposal to cut the 8% sales tax on food furthered concerns about the fiscal outlook as it remains unclear how the government will make up for the lost revenue. Traders are also focused on the Bank of Japan’s policy meeting later today, though rates are expected to stay on hold following a hike in December. Traders will watch for any hawkish signals from Governor Ueda as speculation rises that the next hike from the bank could come at its June meeting. Focus will also be on the central bank’s quarterly outlook report, where it will give its latest growth and price forecasts. Traders continue to watch for signs of a potential yen intervention amid worries about the impact of a weaker currency on domestic inflation.

AUSTRALIAN DOLLAR: The Aussie hit a 15-month high on Thursday as easing tensions over Greenland elevated sentiment, while a solid set of labor data provided underlying strength to the currency. Employment in Australia grew by 65,200 in December, surpassing forecasts of 30,000, while the unemployment rate dropped to 4.1%, its lowest level in seven months, and below the Reserve Bank of Australia’s forecasts of 4.4%. The labor data comes after other domestic data showed a pickup in consumer spending, suggesting that the economy could be growing quicker than policymakers have anticipated. Recent data has been supportive of the view that the RBA will raise rates sometime this year. Money markets are favorable to a rate hike in March and April, with the later meeting being fully priced in. Focus now shifts to quarterly inflation data due next week, where a stronger reading could bolster the case for a February hike from the bank.

INTEREST RATE MARKET FUTURES

Yields are higher at the front-end and little changed at the long-end in response to this mornings revised GDP figures. Weekly initial jobless claims continue to support the view that the labor market is stable, with no visible signs of an immediate slowdown, reinforcing the case that easing from the Fed is not necessary in the short-term. With inflation still resting above the Fed’s 2% target at 2.7%, focus will shift to November’s PCE inflation data out later this morning for further clues on Fed policy. Markets are currently only priced for one rate cut in 2026 after starting out the year priced for two; markets are priced for a September rate cut, July was previously fully priced in but on top of recent data, the case for holding policy has become stronger.

The Supreme Court has concluded its hearing in the case of Lisa Cook, a Biden-appointed member of the Federal Reserve’s board of governors. The Trump administration accused her of falsely claiming two properties as primary residences to obtain favorable mortgage terms. Cook denies the allegations. The justices signaled overwhelming concern about how Trump’s attempt to remove Cook played out. But they seemed far less certain about what to do about it. The court’s decision could determine whether the central bank will maintain its long history of setting monetary policy independent of presidential meddling.

The spread between the two- and 10-year yields is 64.50 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.614%.

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