Written Commentary
STOCK INDEX FUTURES
Stock futures were lower in overnight trade after finishing last week on a series of gains. Last week’s rally was fueled by large tech company earnings, a solid jobs report, and optimism that new trade deals will arise in the coming weeks with major US trading partners. President Trump on Sunday said the US was meeting with many countries, including China, on trade deals. The S&P 500 has now fully recovered its losses following President Trump’s sweeping tariffs on April 2nd.
On Wednesday, investors will be looking ahead to an outlook on the economy from Federal Reserve Chair Jerome Powell, who is set to deliver remarks following the central bank’s May meeting. Rates are expected to remain unchanged.
ISM non-manufacturing data, which is due at 9:00 A.M. CT, and Thursday’s jobless claims report will provide key insights on the US economic outlook. ISM non-manufacturing PMI for the month of April is expected to be 50.2.
CURRENCY FUTURES
The June US dollar index was lower in overnight trade as investors await further trade news. The dollar faced pressure Friday after April US hourly earnings rose less than expected, a factor promoting a more accommodative policy from the fed.
British Pound futures held above $1.33, making gains against the dollar. The Bank of England will meet on Thursday and is expected to cut interest rates by 25 bps to 4.25%. The central bank will also provide updated economic forecasts, which could signal what direction monetary policy moves will go in, with some economists expecting a more aggressive easing path. According to data from the CFTC, hedge funds and other large speculators increased their net long positions to 24,000 contracts, up from 20,500 contracts a week prior.
Euro futures traded around $1.13 as the Euro advanced against the dollar. The April annualized Eurozone Core CPI increased to 2.7%, up from the previous month’s 2.4%. Headline CPI saw a yearly increase of 2.2%, which is the same as the previous month’s figure and slightly above the expected 2.1%. Meanwhile, the Eurozone’s Manufacturing PMI for April came in at 49.0, above expectations of 48.7 and an increase over last month’s figure of 48.6. Europe’s unemployment rate remains unchanged at 6.2%. The strong inflation readings have strengthened the belief that the European Central Bank will cut interest rates by 60 bps before the year ends. According to data from the CFTC, hedge funds and other large speculators increased their speculative net long positions to 75,800 contracts, up from 65,000 contracts a week prior.
Japanese Yen futures extended gains in overnight trade as the dollar weakened. Japan held interest rates unchanged at 0.5% last week as the bank downgraded its growth and inflation outlooks, adding to expectations that future rate hikes are unlikely. Japan’s unemployment rate increased to 2.5%, up from 2.4% a month prior. Japan and the US finished a second round of trade talks last week, with Japan aiming to finalize a deal by June. According to data from the CFTC, hedge funds and other large speculators increased their speculative net long positions to 179,200 contracts, up from 177,800 contracts a week prior.
Policy decisions from Norway’s Norges Bank, and Sweden’s Riksbank are due this week. Both banks are expected to maintain their current rates.
INTEREST RATE MARKET FUTURES
Futures were higher in overnight trade. Futures were trading lower over the past five days as a result of better growth prospects in the US economy, and not from a flight from US assets. Wednesday’s data showed that the US GDP contracted in the first quarter, but taking trade out of the equation, underlying consumer demand remains solid – a key driver of the US economy.
The 10-year yield is hovering around 4.3%, and the 2-year yield is at 3.8%.
Focus this week will center around the Fed’s commentary on any signals of whether rates could be cut later this year and the outlook for the US economy. Markets are currently predicting a 96% chance that rates will remain unchanged at the May meeting and a 64% chance that rates will stay the same at the June meeting. For now, inflation remains elevated and recent data suggested the US jobs market remained healthy in April despite Trump’s announcement of widespread tariffs early that month. The Fed, however, will need to balance the need to support the economy against concerns about the inflationary impact of tariffs.
The Treasury will auction off 10-Year notes on Tuesday.
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