Tech Higher Ahead of Trump-Xi Summit

MACRO FRAME

With global monetary policy skewing toward a renewed tightening cycle, US-China talks take center stage as markets navigate elevated oil prices.

STOCK INDEX FUTURES

Equity index futures were higher overnight with the Nasdaq leading gains as sentiment was lifted following hopes over an to the US-Iran conflict and falling oil prices. President Trump signaled that he would be open to the prospect of meeting Iranian President, Masoud Pezeshkian. This comes as world leaders will gather in New York for the U.N. General Assembly, where the president will also meet with Gulf leaders for broader talks over security in the region. Elsewhere on the geopolitical trade front, President Trump and Chinese President Xi will be meeting on Thursday, where it is expected that the two sides will advance their current trade truce and discuss potential agreements on AI-safeguards. Global equities were higher today, with the KOSPI index advancing nearly 2% as memory chip AI-related names powered gains, sentiment that is likely to shape today’s US session.

CURRENCIES

US DOLLAR: The USD index was little changed overnight at 100.24. Traders continue to expect an additional rate hike before year-end, while the Bank of Japan’s rate hike on Friday and forward guidance was unconvincing to investors, giving the dollar a further edge. However, reports of possible intervention this week could see dollar strength tested if Japanese authorities intervene. Money markets are priced for 32 bps of tightening by year-end. For the dollar, now that the immediate near-term downside risk from the BOJ is gone, oil prices will play a greater role in price action as markets look to US-China talks and the U.N. Assembly.

Watch point: A reduction in tightening expectations for the Fed will act as the greatest risk to the dollar maintain its move above the 100 level.

EURO: The euro is little changed at $1.1486. French and German PMI data on Wednesday will be the highlight of the week for the euro as traders look to clues on European economic growth following the recent rate hike from the European Central Bank. While higher oil prices played a role in the central bank’s decision to raise rates, strong economic growth has set up conditions for the ECB to raise policy without considering much downside risk to economic growth or the labor market. A continuation of this trend will cement year-end rate hike expectations and could see the euro claw back some gains against the dollar. Money markets expect the ECB to hike marginally more than the Fed in the next 12 months, pricing in 79 bps of tightening vs. 78 bps.

Watch point: Broader price direction will be subject to Fed-ECB policy expectations, which has been favorable to the dollar in advent of a hawkish repricing in Fed policy expectations the near-term.

BRITISH POUND: Sterling is little changed at $1.3392. Focus remains on the outlook for the Bank of England following its decision to hold rates steady, while it warned that tighter policy may be necessary to curb higher oil prices. PMI data this week is likely to help shape expectations on timing of a potential rate hike from the BoE after retail sales data unexpectedly rose 0.5% MoM in August against expectations of a 0.2% drop. Money markets are fully priced for a hike by year-end and are pricing 82 bps of tightening by April of 2027.

JAPANESE YEN: The yen is 0.27% weaker at 157.26 yen per dollar. Japanese markets are closed through Wednesday for holiday, which could provide officials in Japan an opportunity to intervene in the market and prop up the yen with another round of intervention. The BOJ underwhelmed the investors following its divided decision to raise rates and Governor Ueda’s unconvincing press conference. Ueda said that underlying inflation is approaching 2%, and that the bank’s focus has shifted to guard against an inflation overshoot. Still, Ueda talked down back-to-back hikes or 50 bp increases, saying those moves were reserved for situations where inflation is extremely high and exceeding target. The two dissents come from the new, Taikaichi-appointed members, who were seen as being added to the board to influence policy in her favor. For the yen, the longer-term path appears biased toward gradual appreciation, though with real wages being low rather than negative, the path for policy could lag expectations.

Watch point: While markets are underwhelmed at the BOJ, a path for additional rate hikes looks to be  appears to be the primary scenario.

AUSTRALIAN DOLLAR: The Aussie is 0.24% higher at $0.7135, stronger risk appetite from lower oil prices is lifting the currency. This week, Reserve Bank of Australia Governor Michele Bullock will speak to the Committee for Economic Development of Australia on Tuesday, where she is expected to signal further increases in the bank’s policy rate. The Commonwealth Bank of Australia and ANZ joined the other two Big Four Australian banks in expecting a rate hike this year.. ANZ is also expecting an additional move to 4.85% in November. The RBA left its cash rate at 4.35% at its August 12 meeting, by its own account a straight hold-versus-hike debate, not a cut discussion, after June labor data showed a still-robust market (employment +76,300, unemployment 4.4%, participation up to 67.0%), consistent with a cautious, higher-for-longer stance. Q3 inflation figures will continue to serve an outsized role in determining RBA policy and given that the September policy meeting is a month before the release, policymakers could wait until that data arrives before making any decisions.

Watch point: August’s hiring figures argue for a higher-for-longer stance, leading the focus to Q3’s inflation data.

TREASURY FUTURES

Yields moved lower across the curve as oil prices fell and global equities rallied. No key US data on the calendar today, so markets will continue to trade headlines heading into tomorrow’s Two-year note auction. President Trump said he could be open to meeting the Iranian President this week, while he is also expected to meet with other Gulf leaders, ahead of a scheduled summit with Chinese President Xi Jinping. US Central Command chief Admiral Brad Cooper said crude and LNG flows through the Hormuz have reached a six-month high, with the main transit lanes clear of mines. Headlines like these could lead to a continued drop in oil prices, which could see longer-term yields edge lower and maintain the 10-year’s dip below 5%, however, an uncertain backdrop and other domestic factors are likely to keep the bias of yields pointed upwards. Inflation risk, fiscal and corporate supply, capital competition and term premium are likely to remain the key factors in shaping long-term yield direction. Inflation expectations should remain anchored and leave further room for term-premium and corporate debt supply to determine price direction.

Watch point: Inflation risk, fiscal and corporate supply, capital competition and term premium will be key factors in determining whether the yield curve maintains its recent flattening or falls into a bear steeping move.

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