Indexes Edge Higher, Focus on Fed

STOCK INDEX FUTURES

Stock index futures are higher, eyeing a rebound as the Israel-Iran conflict continues with both countries exchanging missile and drone strikes throughout the weekend and overnight. President Trump said on Sunday there’s a “good chance” of an Israel-Iran peace deal, but the hostilities may need to play out first.

Economic data this week includes retail sales and industrial production for May on Tuesday, followed by May housing starts and weekly jobless claims on Wednesday. The Fed will also meet this week, with the bank expected to hold rates steady while also updating its summary of economic projections.

Stock valuations are still relatively high by historical standards; the S&P 500 was trading near 23 times its expected earnings over the next 12 months as of June 13, versus a 10-year average of 18.7 times. The high price-to-earnings ratio is at odds with the current macro environment, which has seen central banks and private companies across the globe cut their growth forecasts due to the still-unfolding consequences of uncertain trade policies.

CURRENCY FUTURES

The USD index is lower, hovering near its lowest level since 2022 as investors closely watch developments in the Israel-Iran conflict. The Fed is widely expected to hold rates steady this week, but markets will be analyzing the bank’s summary on economic projections for insights into how policymakers view the broader economic outlook.

Euro futures are higher after wage growth figures topped estimates. Wages in the eurozone grew at 3.40%, over expectations of a 3.20% growth, although the figures are down from a 4.10% increase the previous quarter and marked the slowest pace of wage growth since Q3 2023. The eurozone economic calendar is light this week, with the focus resting on Wednesday’s CPI figures and the Eurogroup meeting of eurozone finance ministers on Thursday and Friday. EU negotiators are reportedly willing to accept a flat 10% baseline US tariff across all exports to the US in hopes that the US will avert higher duties on cars, pharmaceuticals, and electronics.

British pound futures are higher on dollar weakness. Focus will center around the Bank of England’s meeting on Thursday, where the bank is widely expected to hold rates steady at 4.25%. Investors will watch for signals and commentary on when rates may fall again. Recent data out of the UK has pointed to a slowing economy, with GDP in April contracting -0.30% while unemployment ticked up. Inflation in April grew to 3.5% and is expected to remain elevated for the time being. Markets are expecting the BoE to cut rates again in September, while some expect a solid chance of an earlier cut in August. UK CPI inflation figures will also be released Wednesday.

Japanese yen futures slipped overnight ahead of the Bank of Japan’s two-day meeting ending Tuesday. The bank is expected to hold its benchmark rate steady at 0.5%. Markets will watch for any changes regarding the pace of its Japanese government bond purchases and reductions. The BoJ is cutting purchases of bonds by 400 billion yen per quarter through March 2026, as Governor Kazuo Ueda has said yields should be set by markets, following the end of yield curve control. Inflation data due Friday is likely to show an increase, driven by the end of energy subsidies and rising food prices. Core CPI excluding fresh food is expected to rise 3.6% in May from a year earlier, up from 3.5% in April.

Australian dollar futures are higher as the AUD strengthened overnight. Labor data due Thursday is expected to show 25,000 new jobs and an unemployment rate holding steady around 4.1%. Recent labor data has shown resiliency, casting doubts on a July rate cut from the Reserve Bank of Australia.

INTEREST RATE MARKET FUTURES

Futures edged lower across the curve, with yields little changed, as focus this week will center around any signals from the Fed on when the central bank will cut interest rates. Markets are expecting a 25 bps rate cut to come in September. The Fed will update its summary of economic projections as well, with investors paying close attention to signals from the bank on the broader economic outlook.

Demand at Treasury auctions will remain a focus for bond investors; the Treasury will auction $13 billion in 20-year bonds on Monday and $23 billion in five-year Treasury Inflation-Protected Securities on Tuesday. Last week saw solid demand across several Treasury auctions. Thursday’s 30-year bond auction was met with strong demand, cooling market fears that longer-dated US debt would come under scrutiny and face lower demand in the midst of heightened yields on long-term bonds globally. The auction fetched a yield of 4.844%, more than a basis point below where the market was before bidding, signaling strong demand with foreign demand remaining strong as well. Wednesday’s 10-year treasury note auction also saw similar results.

The 10-year Treasury yield is 4.45%, and the 30-year yield is hovering around 4.94%. The spread between the two- and 10-year yields rose to 46 bps from 43 bps Friday.

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