SIFs Higher on US-China Talks

STOCK INDEX FUTURES

SIFs were higher in overnight trade as news broke that Treasury Secretary Scott Bessent will meet with China’s top economic official in Switzerland this week to discuss economic and trade issues. The meeting signals what could be a first step in resolving a trade war that has disrupted the global economy. Investors await today’s Federal Reserve policy decision and comments from Fed Chair Jerome Powell, whose comments will be heavily scrutinized for any shift in tone.

President Trump teased a “very big announcement” on either Thursday or Friday during a press conference with Canadian Prime Minister Mark Carney, although he offered no further details. Both leaders said they were committed to bilateral friendship, with President Trump suggesting the USMCA is a “good deal for everybody.”

US initial jobless claims come out tomorrow at 7:30 a.m. central time.

The Fed’s policy decision comes at 1:00, and Powell will speak at 1:30 central time. The federal funds rate is expected to remain unchanged while markets are predicting a 68% chance of no cuts at the June meeting and a 55% chance of a 25 bps cut at the July meeting.

CURRENCY FUTURES

The June US dollar index gapped higher overnight as news of the meeting between US and China officials boosted confidence in the greenback. The index fell over half a percent on Tuesday over worries that US trade policies will result in stagflation. Losses were accelerated after the US March trade deficit increased to a record high, resulting from a rush of imports in the country to try and get ahead of tariffs.

Euro futures edged slightly lower, still holding above $1.13. Eurozone retail sales shrank 0.1% in March, down from the previous monthly reading of 0.2%, as worsening consumer confidence has spread across Europe. German factory orders saw a 3.6% growth in March, beating expectations of 1.4% and a strong increase over the previous month’s reading of 0.0%, reflecting the stockpiling of goods into the US to get ahead of tariffs. Despite the increase, new orders were 2.3% lower in the first quarter of 2025 than in the final quarter of 2024.

The UK construction PMI for the month of April was 46.6, above an expected 46.0, suggesting a contraction in the construction industry is slower than anticipated. British pound futures were holding above $1.33. The Bank of England will announce its upcoming policy decision on Thursday, with markets anticipating a 25 bps rate cut to 4.25%. The pound could gain strength if the BoE provides any hints that the market’s interest rate cut expectations are overdone; the market is pricing in 90 basis points of rate cuts for the rest of 2025.

The June US dollar index gapped higher overnight as news of the meeting between US and China officials boosted confidence in the greenback. The index fell over half a percent on Tuesday over worries that US trade policies will result in stagflation. Losses were accelerated after the US March trade deficit increased to a record high, resulting from a rush of imports in the country to try and get ahead of tariffs.

Euro futures edged slightly lower, still holding above $1.13. Eurozone retail sales shrank 0.1% in March, down from the previous monthly reading of 0.2%, as worsening consumer confidence has spread across Europe. German factory orders saw a 3.6% growth in March, beating expectations of 1.4% and a strong increase over the previous month’s reading of 0.0%, reflecting the stockpiling of goods into the US to get ahead of tariffs. Despite the increase, new orders were 2.3% lower in the first quarter of 2025 than in the final quarter of 2024.

The UK construction PMI for the month of April was 46.6, above an expected 46.0, suggesting a contraction in the construction industry is slower than anticipated. British pound futures were holding above $1.33. The Bank of England will announce its upcoming policy decision on Thursday, with markets anticipating a 25 bps rate cut to 4.25%. The pound could gain strength if the BoE provides any hints that the market’s interest rate cut expectations are overdone; the market is pricing in 90 basis points of rate cuts for the rest of 2025.

INTEREST RATE MARKET FUTURES

Treasury futures are higher at the long end of the curve and lower at the front end as US-Sino trade news sparked a risk-on sentiment. Futures were higher across the curve Tuesday as yields dropped following a $42 billion auction of new 10-year notes. The notes fetched a yield of 4.342%, slightly lower than what traders were expecting, but were met with strong demand. The strong demand eased investors’ concerns that foreign demand for Treasuries might falter in the wake of tariffs.

The US yield curve has steepened in recent days, as the spread between the two-year and 10-year yields is over 50 bps. The steepened curve signals increased inflation expectations, likely as a result of tariffs. The effects from tariffs will most likely be influencing consumer prices in May and June as pre-tariff countermeasures run out and costs begin to be passed on.

Investors are awaiting the Fed’s policy decision today. While the Fed is widely anticipated to hold rates steady, markets will be closely watching Fed Chair Jerome Powell’s remarks regarding the future policy path of the bank.

The 10-year Treasury yield is steady at 4.324%.

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