Investors Focus in on Powell Remarks

CURRENCY FUTURES

The USD index is little changed as investors await policy cues from Powell later this morning. Given that a rate cut is already priced in, any hawkish comments from Powell are likely to provide support for the dollar, while any dovish comments are likely to see less of a reaction. Powell is likely to make comments that reiterate that the outlook on inflation and economic growth due to tariffs remains unclear. Expectations of a reduction in borrowing costs have been tempered by recent economic data flashing inflationary risks and cautious comments from several Fed officials over the past week. Markets are currently pricing a 70% chance of a rate cut in September, down over 10% since the beginning of the week.

Euro futures steadied in overnight trade as markets prepare for Fed Chair Powell’s remarks. New data shows that Germany’s economic output shrank by more than initially estimated in the second quarter, with industry faring worse than expected as US tariffs hurt exports. GDP fell by 0.3% in the second quarter, sharper than the 0.1% decline initially estimated last month. Goods exports to the US fell as a reversal of what happened in the first quarter played out, where tariff front-running boosted foreign GDPs due to the increase in exports while the US economy saw a contraction due to the strong wave of imports. Eurozone Composite PMI rose to 51.1 in August to mark the sharpest pace of expansion in the bloc’s private sector output since May of the previous year. The growth was supported by a third straight expansion in the services sector and an unexpected rebound for manufacturers, their first in over three years. In Germany, Europe’s largest economy, activity gained a little pace, while in France it continued to weaken but at a slower pace. Export orders continued to decrease, showing the fastest drop in five months in August, pointing to the impact of US trade tariffs. On the price front, input cost inflation was at a five-month high, driving firms to increase their output charges the most in four months. Despite the stronger headline reading, business confidence eased for a second month amid concerns of tariffs from the US and economic headwinds in the Euro Area.

British pound futures are little changed as traders pare wagers of a rate cut by the Fed. UK S&P Global Composite PMI rose to 53 in August of 2025 from 51.5 in the previous month, ahead of expectations that it would inch higher to 51.6 to set the sharpest growth rate in private-sector business activity in one year, according to a flash estimate. The expansion was carried by the services sector (53.6 vs 51.8 in July), which also rose to a one-year high, to offset a steeper contraction for service providers (47.3 vs 48). Input inflation was at the highest since May, with firms citing the burden of higher National Insurance payments and their impact on labor costs. The data follows CPI inflation data released on Wednesday, which showed prices rose 3.8% on an annualized basis, up from 3.6% in June. The sets of data will likely keep policymakers at the Bank of England from cutting rates in the near term. However, on a positive note on the inflation picture, many of the inflation drivers in the report are likely to be one-off price increases.

Japanese yen futures are lower as inflation data added to expectations of a coming interest-rate increase from the Bank of Japan. Consumer prices, excluding volatile fresh food, climbed 3.1% from a year earlier last month, compared with June’s 3.3% rise. Growth data released last week supports the case for a rate hike; preliminary figures showed that real GDP increased 0.3% in the April-June period from the previous quarter, while the reading for the January-March quarter was revised up to 0.1%. That means the economy has grown for five straight quarters, albeit at a modest pace. Markets are adding to expectations that a rate hike could come as early as October from the BoJ. At its July meeting, the central bank lifted its inflation outlook and signaled openness to a hike by year-end.

Australian dollar futures are little changed as markets await Powell’s remarks later this morning for policy direction clues. PMI data released yesterday pointed to an easing inflation picture while inflation expectations lowered. Australia’s private sector experienced its strongest expansion since April 2022, as the composite PMI climbed to 54.9 in August. The growth was fueled by solid gains in both the services and manufacturing sectors, underpinned by a surge in new orders and a broader customer base. At the same time, consumer inflation expectations eased for the second consecutive month, falling to 3.9% in August from 4.7% in July, the lowest level since March. In the first quarter, annual headline inflation remained steady at 2.4%, marking a four-year low and holding unchanged for the third straight quarter. Meanwhile, the trimmed-mean CPI, the Reserve Bank of Australia’s preferred gauge of core inflation, declined to 2.9%, its lowest reading since late 2021, though still slightly above the midpoint of the RBA’s 2–3% target range.

STOCK INDEX FUTURES

Stock index futures are higher as Wall Street awaits Fed Chair Powell’s highly anticipated speech at 9:00 a.m. CT. Strong indications of reductions in borrowing costs will likely support the equities while hawkish comments are likely to give markets headwinds. The S&P Global US Composite PMI rose slightly to 55.4 in August, marking the strongest expansion pace of 2025 and the 31st straight month of growth. Services remained solid despite a slight dip, while manufacturing rebounded sharply. Hiring surged, backlogs grew, and input costs spiked due to tariffs, pushing selling prices higher. Business sentiment improved but stayed below early-year levels amid ongoing policy concerns.

The Philadelphia Fed Manufacturing Index fell sharply to -0.3 in August, missing expectations of 6.8 and down from July’s 15.9, signaling a notable slowdown in manufacturing activity. While hiring continued modestly and the average workweek lengthened, firms faced surging input costs and rising selling prices. Despite current weakness, businesses remain optimistic about future demand, expecting growth in orders, shipments, and capital spending.

INTEREST RATE MARKET FUTURES

Futures are little changed across the curve, as markets await Fed Chair Powell’s remarks amid unprecedented pressure to cut rates from President Trump. A rate cut in September is largely priced in, although traders have been reducing expectations of a September cut, with Fed Funds futures pricing a 73% chance of a rate cut, down from 84% to start the week. Any hawkish comments from Powell are likely to result in a sell-off in the Treasury market. Markets will also look for any clues regarding the extent of easing from the Fed, although tariff talk regarding economic uncertainty is likely to be a mainstay of the speech.

S&P Global US Composite PMI rose to 55.4 in August, pointing to resilient economic momentum, with both services and manufacturing showing solid expansion. Input costs rose sharply, largely due to tariffs, fueling the steepest increase in average selling prices seen in the past three years. Business sentiment improved but remained well below levels seen at the start of the year, as firms continued to express concerns over government policies, particularly tariffs. For the Treasury market, this reinforces concerns about persistent inflationary pressures, especially as input costs surged due to tariffs and firms raised selling prices at the fastest pace in three years. The combination of robust demand, accelerating hiring, and sticky cost inflation could keep upward pressure on yields, particularly at the front end, as markets reassess the likelihood of near-term rate cuts.

The Philadelphia Fed Manufacturing Index sharply disappointed in August, falling to -0.3 versus expectations of 6.8 and down from 15.9 in July. This unexpected contraction in regional manufacturing activity may raise concerns about the durability of the broader industrial recovery. While firms continued hiring, the pace slowed, and most reported no change in staffing. Notably, input costs surged, with the prices paid index hitting its highest level since May 2022, signaling persistent cost pressures. Selling prices also rose, albeit more moderately, and firms expect to raise their own prices by 4.1% over the next year. The combination of weakening activity and sticky input inflation presents a mixed signal. The softening in demand could support a dovish tilt from the Fed, but elevated cost pressures and firm pricing intentions may keep policymakers cautious. The data complicates the inflation narrative and could reinforce the Fed’s “higher for longer” stance, especially if price pressures remain broad-based. Treasury yields may remain range-bound until Friday as markets weigh the risk of slowing growth against persistent inflation dynamics.

The spread between the two- and 10-year yields fell to 51.9 bps from 54.2 bps on Thursday.

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