US-Taiwan Deal Leads Tech Higher

STOCK INDEX FUTURES

The S&P and Nasdaq are higher ahead of the bell while the Dow lags. The US and Taiwan signed a trade deal on Thursday that promises to bring in $250 billion to boost US chip manufacturing. The tech sector helped lead gains on Thursday following TSMC’s strong results and plans to boost capex spending, which fueled optimism around the broader sector, sending related shares higher. Bank stocks also rallied, with Goldman Sachs and Morgan Stanley both posting strong quarterly profits supported by robust dealmaking. The earnings calendar is quieter today with smaller banks such as PNC and Regions Financial set to report today.

CURRENCY FUTURES

US DOLLAR: The dollar is little changed in what is set to be a quiet day on the data front, with industrial production figures for December out later in the morning. The dollar is on track for its third consecutive weekly gain as recent data has dampened rate cut expectations slightly, while broader safe-haven flows have also supported the currency. December’s inflation print showed core price pressures eased in December, while headline prices remained stable. Fed Chair Powell has suggested that the impact of tariffs on inflation will peak in the first quarter and then subside. The dollar has recovered its losses from the beginning of the week after Fed Chair Powell said the Department of Justice had served the Fed with grand jury subpoenas. Fed funds futures are pricing the next rate cut to come in June on the back of improving employment data and as central bank policymakers expressed concern about inflation.

EURO: The euro edged higher against the dollar after touching a one-month low overnight. European Central Bank chief economist Philip Lane said the central bank will not debate any rate change in the near term if the economy stays on course, but new shocks, like a potential deviation by the Fed from its mandate, could upset the outlook. Preliminary data showed that Germany’s GDP grew 0.2% in 2025, rebounding from a 0.5% contraction in 2024. The growth marked an end to a two-year period of economic contraction, supported mainly by higher household consumption and government spending. Price direction in the euro is likely to be influenced by clues on the path for monetary policy from the Fed as markets currently expect the ECB to stand pat for some time. The ECB left policy rates unchanged in December and raised some growth and inflation forecasts.

BRITISH POUND: The pound is higher and set for its fifth consecutive weekly gain against the dollar after data this week showed the economy record solid growth in November. Data on Thursday showed UK gross domestic product recorded the fastest growth in November since June, boosted by a return to full production at Jaguar Land Rover after a cyberattack that hit the carmaker and its suppliers. GDP grew 0.3% month-over-month, rebounding from a 0.1% contraction in October above forecasts of 0.1% growth. The services sector led the recovery, growing by 0.3% and reversing a 0.3% decline in the previous month. However, economic activity in the UK still remains subdued and today’s data brought little change to the policy outlook for the Bank of England. Traders have priced in around 40 bps of Bank of rate cuts by September. The BoE lowered rates by 25 bps last month, although officials at the bank cautioned that the pace of easing could slow as the bank does not want to jump the gun on inflation. Money markets suggest the next rate cut could come in April or June, with the latter meeting being fully priced in for a cut.

JAPANESE YEN: The yen rose against the dollar after Japan’s Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter weakness in the yen, including coordinated intervention with the US. Katayama said a joint statement signed with the US last September “was extremely significant and included language on intervention.” This has led markets to speculate on the timing of which an intervention could take place, as the yen has recently come under pressure on expectations that Prime Minister Takaichi may have greater leeway to introduce more stimulus pending the snap election expected early next month. Concerns about looser fiscal and monetary policy in the country have been the primary contributor in the yen’s fall since the election of Takaichi. The news has seen JGBs reach new local highs as concerns about fiscal expansion grow. Markets are favorable for a July rate hike from the Bank of Japan, though wage negotiations and updated forecasts on the economy do present opportunities for odds to shift earlier in the year.

AUSTRALIAN DOLLAR: The Aussie edged lower against the dollar, although the currency was set for a weekly gain. Recent data has been supportive to speculation that the Reserve Bank of Australia could be raising interest rates; markets are currently pricing an August rate hike from the central bank. As such, several banks in Australia have been raising mortgage rates, with the Commonwealth Bank of Australia’s mortgage rate being raised by 0.7 percentage points, while Macquarie Bank followed with a similar hike. These moves come after similar rate increases by Australia’s other major banks in December, underscoring growing expectations that the cash rate may remain higher for longer.

INTEREST RATE MARKET FUTURES

Yields are edged higher across the curve, with the two-year yield hitting a one-month high, while the 10-year note approached 4.2%. Fresh data suggested a stable market, offering limited the urgency for the Fed to lower rates in the near term. Initial unemployment claims were sharply below expectations to hold the decrease in average claim counts since December, extending the view that the US labor market has not seen a significant increase in job cuts despite the prolonged period of higher interest rates.

December’s inflation figures  revealed moderate but sticky inflation, with headline prices up 0.3% on the month and 2.7% year over year, while core inflation rose 0.2% on the month and 2.6% on the year. Services inflation remained sticky, with notable increases in recreation, airline fares, medical care, and lodging, highlighting why inflation progress has slowed even as headline readings stabilize. However, the data is not very likely to shape opinions on how to move on monetary policy. Several officials have recently reiterated the policy remains in a good place, while the bank waits to see how current economic conditions play out and in conjunction with last Friday’s jobs report, the Fed does appear well positioned to wait on policy for the near term.

The spread between the two- and 10-year yields is 61.20 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.573%.

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