SIFs Start Lower, Labor Data Looms

STOCK INDEX FUTURES

Stock index futures are lower to kick off the week as markets look ahead to Friday’s nonfarm payrolls data for August, which will be a key figure in shaping interest rate cut expectations. Treasury Secretary Scott Bessent said on Monday that he is confident that the Supreme Court will back President Trump’s use of emergency powers to implement tariffs after a federal appeals court ruled on Friday that most of the president’s tariffs were illegal. The judges, however, allowed the tariffs to remain in place while the case moves through an appeals process.

PCE inflation grew 0.2% in July, while core prices rose 0.3%. The data being in line with expectations adds further weight to the August labor report this week for further clues as to how the Fed will move in September. Markets are pricing nearly a 90% chance of a rate cut in September. Continued softening in the labor markets would be a signal that a series of rate cuts from the Fed is likely after the September meeting. ISM surveys for August on manufacturing activity are due later Tuesday morning. Services activity on Thursday will also provide further clues on how the US economy is currently faring, especially after the implementation of hefty tariffs. JOLTS job openings data for July on Wednesday, then ADP private payrolls for August and weekly jobless claims data on Thursday will also add clues about the strength of the US labor market.

Last week, second quarter GDP was revised up by 0.3% from 3.0% to 3.3%, led by a decrease in imports, which are subtracted in GDP calculations, and a pickup in consumer spending, though it was partially offset by declines in investment and exports. Real final sales to private domestic purchasers, a key measure of underlying domestic demand, rose 1.9%, up from the previous estimate of 1.2%. On the income side, real gross domestic income (GDI) surged 4.8%, and the average of GDP and GDI rose 4.0%, signaling broad-based economic strength. Corporate profits also rebounded, increasing by $65.5 billion after a sharp decline in the first quarter.

CURRENCY FUTURES

The USD index is higher as investors await Friday’s August nonfarm payrolls data, alongside unemployment, job openings, and private hiring figures also due this week. San Francisco Fed President Mary Daly said Friday the central bank is prepared to ease policy given risks to the labor market, adding that tariff-driven inflation may prove temporary. Markets are pricing in a roughly 90% chance of a rate cut in September. PCE inflation data last week came in line with expectations. The dollar has also felt pressure from President Trump’s efforts to remove Fed Governor Lisa Cook and, if successful, replace her with a more dovish-leaning candidate.

Euro futures are lower as new data showed that annual inflation picked up pace in the eurozone in August, with consumer prices rising 2.1%, up from 2.0% in July and adding to expectations that the European Central Bank will leave interest rates unchanged at its meeting next week. Core inflation was unchanged at 2.3%. In Germany, annual inflation rose in August. But inflation eased in France and was stable in the eurozone’s other two largest economies, Italy and Spain, data last week showed. Further adding to expectations that the ECB will be comfortable leaving borrowing costs in place for the longer term was new labor data that showed the eurozone’s unemployment rate fell to match a record low in July. The European Union’s statistics agency Monday said the unemployment rate fell to 6.2% from 6.3% in June as the number of workers without a job fell by 170,000. The recent strengthening of the euro, which is expected to continue into the future, has reduced the competitiveness of European goods on the global market. The stronger euro, along with newly imposed US tariffs, is likely to hurt growth for the trade bloc, especially for export-focused Germany, as its European neighbors will be unable to pick up the hit to demand from the American market.

British pound futures are sharply lower, falling on fiscal worries amid a sharp rise in longer-dated government debt, as Britain’s 30-year yields rose to their highest level since 1998. Finance minister Rachel Reeves is expected to raise taxes in her autumn budget in order to remain on course for her fiscal targets, potentially adding to the challenge of boosting growth. Investors are growing worried over the UK’s ability to get its finances under control and the governments ability to exercise self-imposed fiscal constraint rules. Fiscal policy could weigh further on the sterling if Reeves raises taxes again. The UK’s challenging fiscal environment could open the door for more rate cuts this year if economic conditions worsen. However, money markets now see only around a 36% probability of a quarter-point reduction this year, and the next cut is likely priced in for spring 2026. Inflation rose to 3.8%, although many price pressures are expected to drop from the last reading. Still, inflation remains well above the Bank of England’s target, and in its most recent policy meeting, policymakers signaled they were more concerned with rising inflation than they were with supporting the economy.

Japanese yen futures are sharply lower as heightened political uncertainty weighed down the yen after a key ruling party official resigned and after Deputy Governor Ryozo Himino offered a lack of hawkish comments. Himino offered few hints on how soon the central bank could raise interest rates, cautioning that global economic uncertainty remains high. Tokyo core CPI recorded a reading of 2.5% last week, above the Bank of Japan’s 2% target and down from a previous recording of 2.9%. Industrial production in the country declined 1.6% in July, below expectations of a 1.1% drop, while retail sales in the country shrank 1.6% during the same period as well, also falling below expectations. At the same time, the unemployment rate eased to 2.3% from 2.5% in June, pointing to continued labor market strength. The mixed data suggests that conditions for a rate hike from the BoJ are not yet in place. BoJ Governor Kazuo Ueda recently stated that wages are expected to rise further amid tightening labor conditions, reinforcing expectations that another rate hike is potentially coming into view.

Australian dollar futures are lower as investors await second quarter GDP data due later this evening. Markets will be watching to see if the data confirms that a slow but tentative recovery is taking hold. Reserve Bank of Australia Gov. Michele Bullock is due to speak in Perth Tuesday as well. She is expected to strike a cautious tone, flagging both the prospect of lower interest rates over the next six months and persistent inflation risks. Recent CPI data showed an uptick, reminding policymakers that caution is warranted. Bullock is likely to continue to point to the prospect of lower interest rates over the next six months, but also highlight the continuing risks around inflation. Australia’s current account deficit narrowed to over one-year low in Q2 2025, coming in better than market expectations. Manufacturing activity jumped to a near three-year high in August 2025, marking the eighth consecutive month of expansion. Meanwhile, business inventories saw their weakest expansion since the contraction in Q3 2024. In the housing sector, private house approvals posted a modest rebound in July. However, this was overshadowed by a steep drop in total dwelling approvals, which fell well short of forecasts and erased June’s strong gains.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve, tracking European bonds as markets await a week filled with key US data. Markets will remain highly sensitive to labor data, with Friday’s data likely being a decisive piece of information for interest rate expectations after July’s PCE inflation data offered no surprises. Weak data on the labor front, as well as weak readings from ISM surveys due this week could drag yields lower.

PCE inflation rose 0.2% month-over-month, a slight cooling from June’s 0.3% increase, with goods prices falling 0.1% and services prices rising 0.3%. Core PCE inflation remained steady at 0.3% monthly but ticked up to 2.9% year-over-year—the highest in five months—suggesting persistent underlying inflation pressure remain. The steady monthly core inflation and uptick in the annual rate could reinforce expectations that the Fed will remain cautious about cutting rates too soon. However, given Powell’s recent comments, it is likely the Fed will move to cut rates soon in the near future at its September or October meeting. The inflation reading adds even more importance to August’s labor market figures for further clues as to how the Fed will move in September and to the extent of easing the economy will see from the bank before year end.

Fed Governor Waller recently voiced support for a 25 basis point rate cut at the September meeting, arguing that policy should shift toward a neutral stance, which he estimates to be 125–150 basis points below current levels. He dismissed supply-side explanations for weak labor data, citing falling labor demand indicators, and urged policymakers not to wait for further labor market deterioration before easing. His remarks also positioned him strategically as a potential successor to Chair Powell.

Concerns over the removal of Governor Lisa Cook have continued to stay evident in Treasury yields, with markets expecting a board with a more dovish tilt. The prospect of monetary policy that could be looser than necessary has raised concerns that the board could lose its grip on inflation, which over the past week has sent short-term yields lower and longer-term yields higher as inflation expectations increase.

The spread between the two- and 10-year yields rose to 62.7 bps from 58.9 bps on Friday.

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