SIFs Stall to Begin the Week

STOCK INDEX FUTURES

The indexes are lower, with the Nasdaq and S&P slipping, while the Dow traded flat, with all three indexes recovering from steeper, overnight losses. Focus in the equities is back on the tech front after Nvidia CEO Jensen Huang downplayed his company’s $100 billion investment into OpenAI after a report came that the deal may collapse. Quarter reports from Amazon, Alphabet, and AMD are on the docket this week after four of the Mag Seven reported last week, that saw moves in opposite directions.

Markets are also looking to recover from last week’s volatility, as outsized moves in gold and silver generated panic among retail investors. Investors also continue to digest news regarding the nomination of Kevin Warsh to head the Fed. Warsh is seemingly a welcome candidate to lead the Fed with strong experience have previously served as a Fed governor.  Most traders are still pricing two rate cuts in 2026.

Elsewhere, attention will be on the data front, with ISM Manufacturing PMI data out later in the morning, followed by JOLTS Job Openings data on Tuesday, ISM Services PMI data on Wednesday, Weekly Initial Claims on Thursday, all leading up to Friday’s January Nonfarm Payrolls report. Forecasts expect the economy to have added around 65,000 jobs during the month.

CURRENCY FUTURES

US DOLLAR: The USD index firmed to start the week as traders continue to digest the appointment of Kevin Warsh to head the Fed. Warsh has been critical of central bank policy in recent years and favors a lower neutral policy rate. Warsh also has experience serving as a Fed governor from 2006 to 2011. That experience is likely offering the dollar support, alleviating some nervousness in the markets that the Fed Chair pick would be a lot more dovish. Traders await ISM manufacturing PMI data for insights on private sector activity and inflationary insights ahead of Friday’s jobs report.

EURO: The euro slipped against the dollar to start the week, which will bring a plethora of data and a policy decision from the European Central Bank. Despite expectations that policy will be left on hold, the ECB meeting on Thursday will be the key focus for markets as traders focus on any signals about how the bank may respond to any rising risks or what direction the next move will be. A stronger euro and renewed geopolitical uncertainty present the risk of a dovish tilt from the ECB in their outlook. However, any change in policy from the ECB is not expected for some time.Hoa

Data out of the eurozone showed that the economy grew quicker than expected in the fourth-quarter as consumption and investment grew at a robust pace and offset a drop in exports.  The bloc’s economy grew by 0.3% in Q4, above forecasts for 0.2%, and 1.3% year-over-year.

Recent comments from several ECB officials has sparked concern that a stronger euro would necessitate a rate cut from the bank due to its deflationary pressures, but markets would likely need a clean break above the $1.20 level before getting excited about pricing in another rate cut. Reduced policy uncertainty, resilient economic growth, and strong equity market performance have provided structural support for the euro heading into 2026. In recent months, robust euro area equity returns have prompted asset managers to rotate out of the dollar, reinforcing euro-positive capital flows.

BRITISH POUND: The pound slipped against the dollar ahead of a policy decision from the Bank of England, where expectations are that the bank will keep rates on hold following a tight 5-4 vote to cut rates in December. This time, policymakers are likely to be in agreement that rates should keep steady as inflation persists above the bank’s 2% target even though it has shown signs of easing. Rates are likely to fall in the coming months as a cooling labor market and easing wage growth alleviate underlying prices pressures in the economy. Still, markets will pay attention to the composition of Thursday’s vote for signals on the pace of interest rate cuts that could come. The bank will also update its forecasts for growth and inflation.

Strong domestic data in recent weeks has supported sterling and prompted markets to pare back expectations for near-term easing from the Bank of England. Recent PMI surveys pointed to the strongest expansion in UK business activity since April 2024. The PMIs also signaled firming inflationary pressures across both services and manufacturing, with output price inflation climbing to a nine-month high, alongside softer employment trends. As a result, the case for an imminent rate cut remains weak, and policymakers are likely to wait for further data. Markets currently price the first BoE rate cut to come in June or July, with July’s meeting being fully priced.

JAPANESE YEN: The yen softened with focus on the political front this week ahead of Sunday’s Lower House election. Expectations are that Prime Minister Takaichi’s ruling Liberal Democratic party will regain its majority, as the Prime Minister enjoys strong popularity in the country. This has worried markets regarding her policy proposals, which favor stimulus and tax breaks, as they reignite concerns over the country’s fiscal health. Elsewhere, focus remains on the prospect of intervention from government authorities as the yen’s weakness remains front and center in political and economic debates. A summary of opinions from the Bank of Japan’s January meeting showed that policymakers debated mounting price pressures from a weak yen, with some warning of the risk of being “behind the curve” in dealing with too-high inflation. Meanwhile, on Sunday night, Takaichi talked up the benefits of a weaker yen in a campaign speech, adopting a tone at odds with her finance ministry which has refused to rule out any options to counter excessive foreign exchange volatility. Takaichi later softened her stance saying that she did not have a preference on the yen’s direction.

On the data front, figures from last week showed that Tokyo core CPI figures came in below forecasts, with prices growing at a yearly rate of 2.0%. Forecasts were expecting a rise to 2.2%. The reading marks the lowest since October 2024 and in line with the Bank of Japan’s 2% target, reinforcing expectations that the central bank will remain cautious on further rate hikes. Elsewhere, Japan’s unemployment rate held at 2.6% in December, where it has held for four-straight months. Japanese retail sales unexpectedly dropped 0.9% year-on-year in December. The reading reverses last month’s upwardly revised 1.1% growth to mark the first decline since August.

AUSTRALIAN DOLLAR: The Aussie fell alongside a slide in commodity prices, as traders gear up for a interest rate decision out of the Reserve Bank of Australia later tonight. Expectations are that the central bank will raise interest rates given that recent data has proven to be more inflationary than expected. Inflation has risen strongly after the bank cut rates multiple times in 2025, leaving critics to focus on the policy error from the RB and lending focus to how aggressive the tightening cycle from the bank could be. With inflation above to 2%-3% target band, commentary from the RBA is likely to be hawkish, with the bank making intentions known that it is serious about containing price pressures. Australia’s annual inflation climbed to 3.8% in December, with the trimmed mean CPI inching up to 3.3% year-over-year from the prior 3.2%. Recent figures that have also shown that capacity utilization in the economy is stronger than expected, growth remains robust, unemployment is low, while PMI reading have pointed to strong private-sector activity.

INTEREST RATE MARKET FUTURES

Yields are little changed across the curve as markets look to Friday’s jobs report. The Fed recently held rates steady at its latest meeting and signaled that the labor market has stabilized, leaving room to keep rates on hold for the coming months. Any confirmation of that view is likely to provide yields with underlying support and could push rate cut odds further back into the summer. Markets are currently priced for a July cut and show 51.5 bps of total easing by year end. Ahead of Friday’s report will bring JOLTS data for December on Tuesday. Traders will look to the report for further clues on the labor market, with attention focused on the layoff and quits rates. In recent weeks, weekly initial jobless claims data has shown no signs of an uptick in layoff activity, likely setting the background that layoffs in the economy could remain low despite recent news of mas-corporate layoffs.

Former Governor Kevin Warsh has been nominated to head the Fed.  Warsh previously served on the Fed’s board of governors from 2006 to 2011, notably serving during Washington’s rescue of Wall Street during the 2008 financial crisis. Warsh has offered criticism of the Fed in recent times, aligning himself with the views of President Trump, likely a factor as to why he got the nod from the President to succeed Powell. Recently, Warsh has indicated that the bank should be cutting rates faster. That desire is likely to face serious pushback from members at the FOMC who have been uneasy about cutting rates when inflation rests well above the target 2%, especially as the labor market has reflected signs of stabilization and avoided a rapid downturn in labor market conditions. Warsh is also likely to face pressure from the President to lower rates, despite a board that just voted 10-2 to keep rates steady.

The spread between the two- and 10-year yields is 70.30 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.537%.

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