Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher after President Trump announced a framework for a trade deal with the United Kingdom on Thursday. The framework is most likely an agreement that outlines issues to be discussed in the coming months, with tariff rates, trade barriers, and tech trade most likely being major talking points.
Futures were higher Wednesday in choppy trading after the Fed left rates unchanged, and a late rally was buoyed by a report that regulations on A.I. chips would be loosened. The Trump administration is planning to rescind export curbs on A.I. chips, as confirmed by a Commerce Department official.
President Trump on Wednesday said that he would not bring down tariffs on China ahead of the meeting between the two countries. Treasury Secretary Scott Bessent stressed that the meetings with China are just initial talks and that it remains to be seen how far trade conversations will go.
The European Union is considering tariffs on Boeing jets as a countermeasure to US tariffs on the trade bloc should trade negotiations fail. European carriers have hundreds of jets on order with Boeing, which is the US’s largest exporter.
US initial jobless claims came in lower than expectations at 228,000 versus an expected 231,000 and lower than the previous reading of 241,000. Nonfarm productivity dropped to -0.8%, sharply lower than the previous month’s reading of 1.7%.
CURRENCY FUTURES
The June US dollar index is higher after the Fed’s decision to leave rates unchanged offered support for the greenback. Rising hopes of a trade deal between the US and China also contributed to the dollar’s strength as it gained against most major currencies. A-lower-than expected US initial jobless claims reading also provided support for the greenback. The June USD index is trading near five-day highs around $99.77.
Euro futures fell to five-day lows in overnight trade against dollar strength. German industrial production jumped 3% in March, exceeding expectations of 0.9%. The growth was driven by a 2.4% increase in exports to the US.
The Bank of England cut its key interest rate to 4.25%. The bank said it forecasts inflation to reach its 2% target by the start of 2027 and opted to cut rates to support economic growth while highlighting the “unpredictable economic environment.” British pound futures were higher following the news. Future rate cut expectations have been scaled back as two policymakers voted to keep rates steady in what was expected to be a unanimous decision to lower rates.
INTEREST RATE MARKET FUTURES
Treasury futures are lower across the curve following the latest developments in global trade news. Treasury futures had risen Wednesday after the Federal Reserve announced it would keep its benchmark federal funds rate steady. Fed Chair Jerome Powell’s remarks aligned with expectations, reiterating a wait-and-see approach to monetary policy while warning of growing risks of higher inflation and unemployment. Powell noted that the labor market remains solid and broadly in line with the Fed’s dual mandate, saying it is not an immediate concern.
Powell also highlighted that uncertainty about the path of the economy is extremely elevated and that downside risks have increased but not materialized yet. The potential risks that tariffs pose to the economy and the unknown duration for how long they will remain in place are the central challenge to the Fed as it tries to maintain its dual mandate. Tariffs have driven heightened short-term inflation expectations, while longer-term expectations remain more stable. Markets are still anticipating 3 rate cuts by the end of the year.
Following the announcement, the yield curve flattened, with the spread between the two-year and 10-year yields narrowing to 49.4 basis points, down from 55.2 basis points on Tuesday. A flattening yield curve may signal investor sentiment anticipating weaker economic expansion.
The Treasury Department will auction $25 billion in 30-year bonds at noon Central Time.
The 10-year yield rose above 4.3%.
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