Yields Little Changed after US Strikes

INTEREST RATE MARKET FUTURES

Futures edged higher across the curve, with yields little changed as investors monitor the ongoing conflict in the Middle East. Focus this week on the economic front will be data Friday on the US core personal consumption expenditures price index for May. This is the Federal Reserve’s preferred measure of inflation and could provide insights on the trajectory for interest rates. In, investors are looking ahead to fresh economic data, including US existing home sales and PMI reports, for insights into the underlying strength of the economy. Last week, the Federal Reserve left interest rates unchanged and maintained a cautious, data-dependent stance. Fed Chair Jerome Powell warned that inflation could accelerate in the coming months, in part due to the inflationary impact of recently imposed tariffs by President Trump. Powell will address lawmakers Tuesday in the House and Wednesday in the Senate. Investors will likely tune in for clues on the Fed’s next moves.

Market participants continue to pay close attention to the tax and spending bill making its way through the Senate right now, which is set to provide some short-term stimulus but also increase the size of the US debt load over the next decade. The bill would also raise the debt ceiling by $5 trillion and add to expectations that the US Treasury Department would need to increase the size of its bond issuance in order to continue financing the government’s growing debt problem.

The 10-year Treasury yield is 4.35%, and the 30-year yield is 4.86%. The spread between the two- and 10-year yields fell to 45 bps from 47 bps on Friday.

STOCK INDEX FUTURES

Stock index futures are lower in overnight trade as markets remain cautious amid the growing conflict in the Middle East after the US struck multiple Iranian nuclear sites over the weekend. President Trump said late Saturday that the US had struck Iran’s three main nuclear enrichment facilities, claiming the sites had been “totally obliterated.” He threatened Iran with more attacks if the country did not quickly seek peace talks. The focus now shifts to Iran’s next move, how the country will react either militarily or diplomatically. Its foreign minister said it reserves “all options,” while its parliament voted to block the Strait of Hormuz, which one-fifth of the world’s oil flows through, although Iran’s leaders have yet to make a decision.

The US and EU are reportedly nearing a deal on multiple nontariff trade issues, from deforestation rules to the treatment of US tech companies in Europe, although the fate of looming tariffs set to be imposed by each trading partner remains unclear. The deal does not specifically address any of the tariffs that President Trump or the EU have threatened to impose on each other as the July 9^th deadline looms.

Manufacturing and Services PMI for June will be released at 8:45 a.m. CT, with readings of 51.1 and 52.9 expected to come in respectively. The data will be watched for improvements from May’s reading as rising tensions in the Middle East, higher oil prices, and the effect of tariffs all weigh on business sentiment and activity. Other data in the week ahead include existing home sales at 9:00 a.m. Monday, first quarter current account figures Tuesday, and new home sales Wednesday. Durable goods orders, the third estimate of US first quarter gross domestic product, weekly jobless claims, and pending home sales are due Thursday, followed by the final June University of Michigan consumer confidence survey Friday.

CURRENCY FUTURES

The USD index is higher, driven by safe-haven demand following the US airstrikes on Iranian nuclear sites. Investors are closely monitoring the situation for any potential response from Tehran, which could include threats to US personnel in the region or disruptions to global oil shipments through the Strait of Hormuz. Market attention is also shifting to upcoming US economic data, such as existing home sales and PMI figures for new insights into the economy’s trajectory. Last week, the Federal Reserve opted to keep interest rates unchanged, reaffirming its cautious, wait-and-see approach amid heightened geopolitical tensions and ongoing economic uncertainty. Fed Chair Jerome Powell cautioned that inflation may pick up in the coming months, partly driven by the inflationary impact of tariffs introduced under President Trump.

Euro futures are lower following the developments in the Middle East and as flash PMI data showed mixed data for manufacturing activity in the eurozone in June. Private sector activity in the Euro Area largely stabilized as Germany returned to expansion, while France saw a further contraction. Meanwhile, markets continue to expect a 25-basis-point rate cut by the European Central Bank in September, which would lower the key deposit rate to 1.75%.

British pound futures are lower as flight to quality longs for the dollar weighed on the sterling. Flash composite PMI for the UK beat expectations and showed a growth over May’s reading, with composite PMI coming in at 50.7 for June, a step above May’s 50.3. Manufacturing PMI came in at 47.7, beating expectations of 46.9 and higher than May’s 46.4, showing that manufacturing activity contracted less than forecasted, while services PMI edged out expectations with a reading of 51.3. The pound remained under pressure following last week’s Bank of England decision to hold rates steady. The vote was more dovish than anticipated, with three of nine MPC members supporting a rate cut, versus an expected 7–2 split. The BoE cited persistent inflation and geopolitical risks, warning of “two-sided risks” and expecting inflation to stay elevated through 2025.

Japanese yen futures fell as the yen hit its lowest level against the dollar in over a month as safe-haven demand draws support for the dollar. Manufacturing PMI in Japan for June expanded for the first time since May 2024 with a reading of 50.4, beating expectations of 49.5. Services PMI in June also grew over May’s figure with a reading of 51.5. On Friday, Tokyo’s consumer price data is expected to show persistent inflation. Core consumer prices, excluding fresh food, are forecast to have risen 3.3% in June from a year earlier, down slightly from May’s 3.6% gain. The government is also scheduled to release employment and retail sales figures for May on Friday.

Australian dollar futures are lower. May inflation data will be released on Wednesday in what has been a string of relatively tame inflation readings over the last couple of months, which has opened the door for the Reserve Bank of Australia to resume rate cuts. Markets are pricing in a July rate cut this year from the central bank, while in its last meeting, the RBA cited growing global risks to its economy and seriously considered a 50 bps rate cut.

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