Written Commentary
STOCK INDEX FUTURES
Stock index futures are sharply higher following CPI inflation figures that came in just below expectations, helping solidify expectations that the Fed will cut rates next week. Inflation rose to 3.0% on the year, below expectations of a rise to 3.1%. In premarket trading, major tech names advanced, with Nvidia up 1%, Microsoft 0.7%, Apple 0.8%, Amazon 0.2%, Alphabet 0.6%, and Meta 0.9%. Strong corporate earnings further lifted sentiment: Intel surged 6% after reporting better-than-expected Q3 sales, while Procter & Gamble gained 3% following upbeat quarterly results.
PMI data out later in the morning will be closely watched for signals on how private sector activity has held up in the face of the government shutdown, while also giving a peak into cost pressures faced by businesses. Michigan consumer expectations will also be out later in the morning.
The US imposed sanctions on Russia’s major oil producers, Rosneft and Lukoil late Wednesday and also confirmed that President Trump will meet with President Xi of China, next Thursday. President Trump will also meet with the leaders of Japan, Malaysia, and South Korea. The highly anticipated meeting between Trump and Xi comes as a Reuters report detailed that the Trump administration is considering measures to restrict a wide range of software-powered exports to China in retaliation for Beijing’s latest curbs on rare earth exports.
CURRENCY FUTURES
US DOLLAR: The USD index fell following the release of September’s CPI figures, which showed prices rose 0.3% on the month, below expectations of a 0.4% rise and reinforcing expectations that the Fed will move to cut rates in October and December. Markets are pricing in nearly a 99% chance of a 25 bps cut next week, with December odds also reflecting similar odds. The lower-than-expected inflation reading also strengthened the view that tariff-related inflationary pressures remain contained, potentially giving the Fed more room to cut rates in 2026, although labor market conditions remain uncertain and will need to be evaluated. Market attention will now focus on President Trump and Xi’s meeting next week.
EURO: The euro gained in reaction to the release of US inflation figures. Eurozone Composite PMI rose to 52.2 in October from 51.2 in September, beating out expectations of a reading of 51 to mark the strongest expansion in activity since May 2024. The services sector accounted for the expansion in activity, with its index rising to 52.6 from 51.3, hitting a one-year high. Manufacturing unexpectedly rose, with a reading of 50, up from 49.8 in September. Input cost inflation eased for a second month, although output charges accelerated the most in seven. Germany’s private sector activity unexpectedly accelerated in October, with its composite PMI rising to 53.8 in October from 52 in September, beating out expectations of a drop to 51.6. growth was supported by a strong increase in services activity, which hit a two-and-a-half year high of 54.5. The growth in services helped offset stagnant manufacturing activity, which continued to contract with the index rising to 49.6 from 49.5. Input costs and average charges for goods and services all rose, with the respective rates of inflation rising at their fastest pace in eight months. Meanwhile, there was a broad-based easing of businesses expectations for the year ahead, reflecting. the economic situation remains fragile. In France, services PMI shrank the most in eight months, while manufacturing activity remained in contractionary territory.
BRITISH POUND: The pound erased early losses to rise against the dollar after the release of US inflation data along with a batch of upbeat data released this morning. British retail sales unexpectedly rose in September, with sales growth of 0.5% vs. an expected decline of -0.2%. Meanwhile, PMI data pointed to signs of recovery in the manufacturing sector and receding inflationary pressures. The UK’s composite PMI reading rose to 51.1 in October from 50.1 in September. Manufacturing PMI improved to a 12-month high of 49.6 despite a fall in exports due in part to US, while services PMI hit a two-month high of 51.1. Business confidence and new orders were both at their second-highest levels of the year, despite remaining somewhat weak by historical standards, while job losses were the lowest since May. Additionally, the prices paid gauge, rose at its slowest pace since November of 2024, despite being historically high. The data is a welcome sign for the Bank of England it signals that business conditions in the country may be starting to improve, and if the momentum continues further, BoE will have an easier time gauging when it can resume cutting rates. Elsewhere on the Friday release docket, British consumer sentiment figures for October rose to their highest level since August 2024. CPI inflation for September held at an annualized rate of 3.8%, showing no changes in September after rising 0.3% in August. The inflation figures came in below the expectations of economists and the Bank of England, who had expected a rise to 4%. Inflation is expected to continue to moderate, offering the BoE a potential reprieve if those expectations are reflected in upcoming data.
JAPANESE YEN: The yen held early losses against the dollar following the release of US CPI figures, while domestic inflation figures in Japan pointed to signs of persistent price pressures, signaling that fiscal spending concerns remain a worry for markets. Both headline and core inflation rose to 2.9% from 2.7% in August, driven mainly by higher electricity prices although price growth persisted across most measured categories. Japan’s “core-core” CPI, which is more closely watched by the Bank of Japan, rose 3.0% in September, easing from a 3.3% increase in August and marking the slowest pace in five months. Manufacturing PMI declined to 48.3, marking the 15th contraction in factory activity over the past 16 months, and the steepest decline since March 2024. Factory orders dropped sharply as businesses reported weak customer demand and slow business conditions. Selling prices rose due to higher costs and a weaker yen. However, business confidence improved. Services PMI fell to 52.4 in October, from a final 53.3 in September. It marked the lowest level since June, with growth in new orders slowing amid a further decline in overseas demand. The BoJ kept rates unchanged at its September meeting, as expected, as the economy faces both domestic and external headwinds, particularly from US tariffs. However, earlier this week, BoJ Policy Board member Hajime Takata reiterated his call for an interest rate hike, citing easing tariff concerns and continued progress toward the central bank’s inflation target.
AUSTRALIAN DOLLAR: The Aussie was little changed on the heels of US inflation figures, which helped cement market expectations for Fed rate cuts in October and December. Australia’s third-quarter CPI data is due on October 29 and will be decisive for the Reserve Bank of Australia in whether or not it decides to cut rates at its meeting in November. Markets forecast headline CPI to rise to 3.0% annually, at the upper end of the RBA’s 2–3% target. Investors also weighed flash PMI figures showing Australia’s factory activity contracted for the first time this year, while services growth accelerated in October. Manufacturing PMI fell to 49.7 in October from 51.4 in September, marking a return to contraction after nine consecutive months of expansion. Services PMI rose to 53.1 in October, up from 52.4 in September. The improvement was driven by higher new business inflows, though growth in new orders and employment slowed compared with previous months. Export demand for services strengthened, helping to offset manufacturing weakness and stabilize overall new export business. Overall, input cost inflation eased to near a one-year low even as manufacturing input prices rose at the quickest rate since April, while selling price inflation fell to its softest pace in around five years.
INTEREST RATE MARKET FUTURES
Yields dropped across the curve following the release of September’s CPI inflation report, which showed a smaller-than-expected rise in inflation. Headline CPI inflation rose to 3.0% from 2.9% in August on an annualized basis and below expectations of a rise to 3.1%. Core CPI rose 0.2% on the month, a slower pace than the previous two months, at 0.3%, landing the annualized core figure at 3.0%, below expectations of a rise to 3.1%. Gasoline prices surged 4.1% month-over-month, driving the headline CPI higher, while the overall energy index rose 1.5% on the month. Food prices rose 0.2% on the month and came in at a 3.1% rise on the year.
The data all but confirms that the Fed will move to cut rates by 25 bps at its meeting next week, especially with the slight easing in core prices. Fed Funds futures show a 99% chance of a 25 bps rate cut next week, while odds of a 25 bps cut in December rose to 96.7%, up from 91.1% at this time yesterday. At the same time, bets on a jumbo 50 bps cut in December rose slightly to 2.2%, up from 0% at this time yesterday. Markets will also get a chance to look at PMI figures out later in the morning, which will give an update on business conditions in the US and also show a reflection of costs pressures that businesses are facing.
The spread between the two- and 10-year yields rose to 52.60 bps from 51.10 bps on Thursday, while the 2-year yield, which reflects interest rate expectations, fell to 3.459%.
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