Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher as earnings season moves on following volatile reactions to last week’s bank earnings and a packed earnings calendar this week. Tesla, Intel, Netflix, and Coca-Cola lead the earnings roster this week as markets will also gauge their guidance on retail consumption patterns in the absence of US data. Optimism over US-China trade talks also lifted the indexes higher this morning. Treasury Secretary Scott Bessent said relations with China have “de-escalated” and said US-China talks are set to resume this week in Malaysia.
Inflation data out Friday for September will be the mainstay of data this week out of the US, given that the shutdown continues to delay the release of economic data. PMI data on US services and manufacturing activity will also be released on Friday. Markets will watch for clues on the labor market and how the shutdown has impacted demand from consumers.
CURRENCY FUTURES
US DOLLAR: The USD index moved higher ahead of CPI inflation data out Friday and as President Trump softened his tone on China. Friday’s inflation data for September will grab market attention given the ongoing data blackout due to the shutdown. Inflation is expected to rise 0.3% in September to an annualized rate of 3.1%. Meanwhile, Secretary Scott Bessent and Chinese Vice Premier He Lifeng are set to meet this week in an effort to defuse tensions ahead of a possible Trump-Xi meeting later this month. Fed Funds futures are pricing a 96.7% chance that the Fed will cut rates this month and nearly a 97% chance of an additional cut in December.
EURO: The euro slipped against the dollar as political tensions in France eased following the French government’s decision to freeze pension reform. In recent weeks, political developments in France have caused the euro to slide, and markets appear reluctant to fully price out risk from France as budget talks appear fragile. S&P cut France’s sovereign rating to A+ from AA-, citing heightened fiscal risks and continued uncertainty surrounding government finances, despite the submission of the 2026 draft budget to parliament. PMI data for October from Germany, France, and the eurozone are scheduled for release Thursday and will be the highlight of the week on the European economic calendar.
BRITISH POUND: The pound slipped ahead of a busy week of economic data for the UK. Recent comments from Bank of England Governor Andrew Bailey and soft GDP data have led markets to increase bets of BoE rate cuts. Bailey recently warned that the UK’s economy is operating below potential and that the labor market is showing signs of softening. Bailey did note that the timing of future policy moves remains uncertain. Meanwhile, recent data showed GDP grew just 0.1% in August after contracting in July. Markets have fully priced in a rate cut from the BoE in February, while placing the chance of a cut in December at less than 50%. Looking ahead, Wednesday’s CPI inflation data for September will be closely watched, with inflation expected to tick higher, potentially bringing annualized inflation above 4.0%. The BoE has said it expects inflation to peak in September. PPI inflation data will also be released Wednesday. Elsewhere, public finance data for September will be released Tuesday, and PMI data on services and manufacturing activity will be out on Friday along with retail sales data.
JAPANESE YEN: The yen weakened, extending losses as markets await Tuesday’s leadership vote that is expected to see Sanae Takaichi become Prime Minister. Expectations of increased fiscal spending and looser monetary policy have pressured Japanese bonds and the yen in recent weeks. Focus will also center on speeches from several Bank of Japan policy board members this week. Board member Hajime Takata on Monday reiterated his case for resuming rate hikes, which offered some support for the yen in overnight trade. Deputy Governor Ryozo Himino will speak Tuesday. Inflation data out Friday is expected to show that price pressures remain elevated, with consumer prices excluding fresh food expected to rise 2.9% in September. Trade figures for September out Wednesday will also grab attention as markets wait to see how the export-driven economy performs under tariffs.
AUSTRALIAN DOLLAR: The Australian dollar slipped as markets focused attention on US Secretary Scott Bessent’s meeting with Chinese Vice Premier He Lifeng this week. Optimism over US-China trade talks could see an increase in risk sentiment and move the Aussie higher, while a lack of progress may offer some headwinds. Australian Prime Minister Anthony Albanese is scheduled to meet with President Trump and offer a deal to provide the US with critical minerals as an alternative to China. Elsewhere, focus will center around comments from officials at the Reserve Bank of Australia. Recent data showed that unemployment jumped to 4.5% in September, adding pressure on the RBA to lower its official cash rate. Governor Michele Bullock is scheduled to speak on Friday and will be a key focus for markets in a relatively light week on the economic calendar.
INTEREST RATE MARKET FUTURES
Futures are little changed across the curve as markets await Friday’s CPI inflation data for September, while the 10-year yield slipped below 4.0%. On the macro front, President Trump confirmed that he will meet with China’s President Xi Jinping later this month. Secretary Bessent suggested that moving the November deadline to reach a deal with China was possible. The Supreme Court’s ruling on the legality of President Trump’s tariffs, along with trade uncertainty and the government shutdown, has the potential to keep uncertainty high and lead to volatility in yields. On the central bank front, markets are nearly fully priced for a rate cut from the Fed later this month and for another cut following in December.
The spread between the two- and 10-year yields fell to 53.60 bps, while the 2-year yield, which reflects interest rate expectations, edged lower to 3.459%.
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