SIFs Higher Ahead of Busy Week

STOCK INDEX FUTURES

The indexes are higher as markets await a week that will bring delayed job and inflation data that will help shape interest rate expectations for 2026. In premarket trading, megacaps were mixed. Nvidia (up 1.1%), Amazon (0.4%), Alphabet (0.7%), and Tesla (1.4%) posted gains, while Broadcom rose 0.5% after an 11.4% drop on Friday. Microsoft, Apple, and Meta traded roughly flat. Recently, concerns over AI expectations have prompted investors to position out of tech and into value stocks, which has pressured the Nasdaq and S&P, but spared the Dow, given it includes fewer tech names. Retail sales data for October on Tuesday will also attract attention, as well as flash purchasing managers’ index data on manufacturing and services sector activity. Weekly jobless claims are due Thursday, followed by the University of Michigan’s final December consumer confidence survey and November existing home sales on Friday.

CURRENCY FUTURES

US DOLLAR: The USD index edged lower in a week filled with foreign central bank meetings and delayed US data, including November nonfarm payrolls data on Tuesday and inflation data on Thursday. Last week, Fed chair Powell’s lack of hawkishness caught markets off guard and weighed on the greenback as only two voters dissented from cutting rates, far below an expected pushback of five. Markets are pricing in two rate cuts for 2026, while the Fed’s summary of economic projections was unchanged at just one. Powell suggested a rate hike is off the table and that it was not any policymakers base case.

EURO: The euro edged higher against the dollar ahead of the European Central Bank’s policy meeting on Thursday, where it is expected to hold rates steady at 2.0%. Although the bank is expected to leave rates on hold possibly until 2027, speculation has been growing that the next move could be a rate hike. Money markets are implying a 29% chance of a rate hike in December 2026. Recent speculation regarding the upwards move in rates has been supportive of the euro, sending yields higher as well. Given these expectations, focus at the bank’s meeting will center around the ECB’s growth and inflation forecasts. Near term growth expectations are likely to be revised up, while inflation forecasts are likely to be revised down, as a stronger euro has had deflationary effects on the economy, which in growth terms has proven resilient. Ahead of Thursday’s meeting, flash estimate PMI data for December from France, Germany and the eurozone will help be a key input for the ECB on Tuesday while, final harmonized CPI data for November is scheduled for Wednesday.

BRITISH POUND: The pound is higher ahead of the Bank of England’s policy meeting on Thursday, where the bank is expected to lower rates by 25 bps now that November’s budget is out and relieved uncertainty. Despite stagnant growth in the country, inflation still rests at 3.6%, well above the bank’s 2% target. Given the inflation picture, Thursday’s meeting is likely to bring a tight vote, where governor Andrew Bailey could cast the deciding vote. Money markets have priced a 90% chance of a rate cut, as some policymakers at the BoE have signaled that inflation pressures are well-contained. Any signals regarding the bank’s expectations for wage growth and other inflationary pressures will be keenly watched. Ahead of Thursday’s meeting, jobs data on Tuesday is expected to show an uptick in unemployment and declining wage growth, while November inflation figures will be out Wednesday.

JAPANESE YEN: The yen is higher to start the week ahead of the Bank of Japan’s policy meeting on Friday, where it is expected that the central bank will raise interest rates. The BoJ said that most of the companies it surveyed expected to raise rates at the same rate they did in 2025. This was a factor, which the bank had said was necessary in order for it to begin raising rates. Meanwhile, the bank’s Tankan corporate survey showed that big Japanese manufacturers’ business sentiment hit a four-year high in the three months to December. Focus at the central bank’s meeting will also center around any signals on the pace of, or lack thereof, future tightening. It is likely that the bank will stress that the pace of further rate hikes depends on how the economy reacts to the initial increase in rates. Future strengthening of the yen will depend on guidance from the BoJ alongside external indicators, mainly US data.

AUSTRALIAN DOLLAR: The Aussie is little changed unchanged ahead of a quiet week of data after data last week showed after a surprise drop in employment, which led markets to slightly scale back bets on a rate hikes next year. Employment in Australia fell by 21,300 in November as full-time jobs more than reversed a large increase the previous month. However, the unemployment rate held steady  at 4.3% despite markets forecasting a rise to 4.4% as fewer people went looking for work. However, the RBA still views the labor market as tight, citing high job vacancies, widespread staffing shortages, rising labor costs, and other indicators that the economy remains near full employment. The Reserve Bank of Australia kept rates on hold last week and signaled that the next move out of the central bank is likely to be upwards. Increased risks to inflation have presented themselves in the economy, requiring the RBA to need more time to assess the persistence of the inflationary pressures. Household spending, monthly inflation, and private demand figures have all posted strong readings recently and are likely to stay elevated. Data from the National Australia Bank also showed that capacity utilization across the economy was at its highest level in 18 months, which will add to the RBA’s level of concern about the inflation outlook.

INTEREST RATE MARKET FUTURES

Yields are lower across the curve although the 10- and 30-year yield have both edged above last week’s pre-meeting level, as speculation over the amount of easing from the Fed in 2026 has grown following the meeting. Delayed jobs and inflation data for November will be out this week, which could help shape interest rate expectations for 2026. Tuesday’s calendar will include the delayed November jobs report and retail sales from October and September business inventories as well as flash PMIs from S&P Global. The Treasury will auction $13 billion in reopened 20-year bonds on Wednesday, ahead of November CPI figures on Thursday alongside a reopened $24 billion 5-year TIPS auction.

Chair Powell offered a less hawkish outlook than expected last week, while the Summary of Economic Projections saw no changes to its median expectations for monetary policy, still expecting one 25 bp cut in 2026 and 2027. It should be noted, however, that three of the 2026 dots in this quarter’s SEP saw the appropriate policy rate for the end of 2026 being 3.875% (as well as two for 2027, two for 2028, and one for the longer run). A factor, which seemed to get more attention following the Fed’s meeting. Powell said that the policy rate is now within broad estimates of neutral, that he doesn’t think a rate hike is anybody’s base case at this point, and that if not for tariffs, inflation would be having an easier time returning to the bank’s 2% target, mentioning that more than half of the source of inflation is a result from goods related to tariffs.

The spread between the two- and 10-year yields rose to 66.00 bps, while the two-year yield, which reflects short-term interest rate expectations, fell to 3.501%.

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