Fed Speakers, PCE Inflation in Focus this Week

STOCK INDEX FUTURES

Stock index futures fell lower across the board as markets look ahead to several speeches from Fed officials and a string of data out later in the week with no new data out Monday. The Main focus will be on Friday’s PCE inflation figures for August. PCE inflation, the Fed’s preferred measure of inflation, will be keenly watched as markets continue to gauge the extent to which tariffs have increased inflation. Evidence of a limited impact on prices may clear the path for the Fed to cut rates with less obstacles in the way.

Elsewhere on the data front, provisional purchasing managers’ surveys for September due on Tuesday will give updates on activity in the manufacturing and services sectors. Housing data for August will show new home sales on Wednesday and August existing home sales on Thursday. Durable goods data for August and the third estimate of second-quarter gross domestic product are due Thursday, alongside weekly jobless claims. These are followed by the University of Michigan’s final consumer survey for September.

Investors will also monitor any fallout from the Trump administrations latest move that requires US companies to pay a fee of $100,000 per year for H1-B work visas, prompting the likes of Microsoft and Goldman Sachs to send urgent emails warning employees. Shares of megacap techs were mixed in premarket trading.

CURRENCY FUTURES

The USD index weakened to kickoff the week as investors await comments from several Fed officials throughout the week to better gauge the policy outlook after the bank cut rates last week. Friday will offer PCE inflation data for August, a key focus for investors as markets continue to gauge the extent to which tariffs have elevated inflation. Provisional purchasing managers’ surveys for September will give updates on activity in the manufacturing and services sectors on Tuesday. Investors will be looking for any evidence of worsening economic conditions for clues on the rate path from the Fed.

Euro futures are higher as investors look ahead to several data releases out of the eurozone, starting with flash estimate eurozone consumer confidence due later in the morning on Monday. Flash estimate French, German and eurozone purchasing managers indices will follow on Tuesday and Germany’s Ifo business climate index on Wednesday. Germany’s GfK consumer climate survey is due on Thursday, alongside the French consumer confidence survey. Eurozone money supply data is due on Thursday. The ECB signaled its rate-cutting cycle may be over, with policymakers warning of persistent inflation risks linked to tariffs, services, food prices, and fiscal policy.

British pound futures are higher, recovering slightly from Friday’s selloff driven by fiscal concerns. UK public sector borrowing data for August jumped to 18 billion pounds from 14.4 billion pounds in August 2024. Rising government debt continues to raise concerns about the sustainability of UK public finances, putting upward pressure on gilt yields and mounts a challenge for finance minister Rachel Reeves in her November budget. Markets will await flash purchasing managers’ surveys for September on the manufacturing and services sector due on Tuesday. Several Bank of England officials will speak this week, potentially offering clues on the bank’s next steps after it held interest rates steady at 4.0% last week and reduced the pace of quantitative tightening.

Japanese yen futures are little changed following the Bank of Japan’s decision to hold rates steady at 0.5% on Friday. An unexpected dissent by two board members, who voted to hike rates has shifted investor focus back to how soon the BoJ will hike rates. Markets remain unsure whether the BOJ’s policy path will be affected by the October 4 leadership race in Japan’s ruling Liberal Democratic Party to replace outgoing Prime Minister Shigeru Ishiba. Inflation data due Friday is expected to show that consumer inflation excluding fresh food prices in the Tokyo metropolitan area rose 2.8% in September from a year earlier, according to a poll of economists by data provider Quick. That would follow a 2.5% increase in August and may bolster expectations that underlying price pressures remain sticky. Japanese financial markets will be closed Tuesday for a national holiday.

Australian dollar futures are little changed as markets await August inflation data due Wednesday. July’s inflation figures showed a surprise uptick in inflation, coming in at 2.8% on the year, fueled by electricity, new dwellings and holiday travel. Electricity prices surged 13% in July due to timing of rebates and annual price reviews. Westpac forecasts a 3.1% on-year rise in the monthly CPI indicator for August, highlighting risks from a recovery in homebuilding costs, the bank said in a note to clients. The Reserve Bank of Australia will most likely not be too concerned about the rise in inflation, but the data if hotter than expected, could signal that the RBA will not cut rates as deeply as expected.

INTEREST RATE MARKET FUTURES

Futures are higher across the board as markets await speeches from several Fed officials throughout the week, who are expected to explain their outlook on inflation and the labor market. PCE inflation data will also be crucial for Treasurys. Yields are likely to react to the PCE outcome along with any comments from Fed officials, which could send signals about the outcome of the October Fed meeting. Markets are currently pricing in a 92% chance that the Fed will cut rates in October. On the inflation front, a cooler-than-expected reading could clear the path for more easing out of the Fed and set aside worries that tariffs will cause persistent price increases. On the other hand, a strong reading will likely reinforce a hawkish sentiment and the Fed’s “meeting-by-meeting situation” regarding the outlook for interest rates.

Fed Chair Powell characterized last week’s rate cut as a risk management cut rather than the start of a new easing cycle. Powell also added that the Fed is well positioned to move on any economic developments, but the committee felt cutting rates was appropriate given the downside risks to the labor market. Powell also noted that “no risk-free path” is available for the Fed. Six members of the FOMC projected no more interest rate cuts by the end of the year, while one member expects the central bank to hike rates.

On the supply front, the Treasury will auction $69 billion in two-year notes on Tuesday, $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday.

The spread between the two- and 10-year yields fell to 55.1 bps from 53.8 on Friday.

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