SIFs Higher on Trade Hopes

STOCK INDEX FUTURES

Futures are higher across all indexes as investors welcomed a trade deal between the US and UK. The deal, while an agreement in principle, will give the US preferential access to multiple markets in the UK, including agriculture, ethanol, beef, and machinery markets. The deal lowers tariffs on multiple products; UK automakers will pay a 10% tariff on the first 100,000 cars imported into the US. Any additional vehicles will be subject to 25% tariffs while UK tariffs on US automobiles will be reduced from 27.5% to 10%. In 2024, the UK exported just over 101,000 cars to the US.

In addition, the UK will purchase $10 billion worth of Boeing planes, and the US will allow Rolls Royce jet engines and parts to be imported tariff-free. The UK will also lower the tariff on ethanol and beef coming into the UK from the US down to 0%. The deal also created a new trading union for steel and aluminum between the two countries in which steel will no longer face tariffs. UK officials say that they are continuing to negotiate with Trump officials to reduce the baseline 10% tariffs the US imposed.

President Trump on Friday said that an “80% tariff on China seems right” ahead of the highly anticipated meeting between top US and Chinese officials this weekend. China’s trade balance fell over $11 billion as exports significantly decreased for the month of April as a result of the 145% tariffs placed on the country.

CURRENCY FUTURES

The June US dollar index lowered after a two-day rally. The index rose over 1% Thursday after President Trump announced a new trade deal with the UK. Dollar strength was also supported after US weekly jobless claims fell, unit labor costs rose more than expected, and hawkish comments from the Fed on Wednesday. The June US dollar index is trading above $100.2.

Japanese yen futures are higher after a bullish household spending report show an increase of 0.4% month-over-month. Economists had been expecting a 0.5% contraction in spending. The Bank of Japan maintained its policy rate at 0.5% last week and slashed its economic outlook projection for the country.

Euro futures are higher after hitting a five-day low in the wake of the US-UK trade agreement, which saw a surge in the dollar and June euro futures breaking below $1.13. June euro futures are trading around $1.128.

British pound futures recovered losses from Thursday as the dollar pressured the sterling after the trade deal was announced. The Bank of England cut interest rates by 25 bps Thursday in a widely anticipated move but struck a hawkish tone as two members voted to hold rates steady in what was thought to be a unanimous decision. A more cautious stance from the BoE will provide support for the pound. June futures are trading around $1.328.

INTEREST RATE MARKET FUTURES

Futures are higher at the front end of the curve and lower at the long end. Futures were down across the curve Thursday as trade optimism sparked a risk-on sentiment following the US-UK trade deal announcement and hopeful comments from President Trump regarding a potential deal with China. Increased investor sentiment will likely see yields continue to rise, especially if positive news comes out of the US-China trade negotiations coming this weekend.

Chicago Fed President Austan Goolsbee, Fed Governor Christopher Waller, New York Fed President John Williams, and Fed Governor Lisa Cook will all speak today, offering insights into the Fed’s potential monetary path and the path of the economy.

The ten-year yield sits around 4.39%, while the spread between the two- and 10-year yields is around 51 bps.

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