US PMI Data in Focus ahead of Powell Remarks

STOCK INDEX FUTURES

Stock index futures are little changed after hitting records once again on Monday as markets await PMI figures out of the US and remarks from several Fed officials including Fed Chair Powell. The indexes bounced higher on Monday, lifted by optimism that AI trade and Fed easing will continue to fuel the stock markets rally. Nvidia climbed nearly 4% after unveiling plans to invest as much as $100 billion in OpenAI, while Oracle jumped 6.3% on leadership changes and sustained AI momentum. Apple rallied 4.3% on strong iPhone 17 demand, and Tesla advanced 1.9% on expectations of new products and self-driving progress.

The Main focus will be on Friday’s PCE inflation figures for August. PCE inflation, the Fed’s preferred measure of inflation, will be keenly watched as markets continue to gauge the extent to which tariffs have increased inflation. Evidence of a limited impact on prices may clear the path for the Fed to cut rates with less obstacles in the way while signs of sticky inflation could dent expectations for the amount of rate cuts by year end.

On the data front, housing data for August will show new home sales on Wednesday and August existing home sales on Thursday. Durable goods data for August and the third estimate of second-quarter gross domestic product are due Thursday, alongside weekly jobless claims. These are followed by the University of Michigan’s final consumer survey for September.

CURRENCY FUTURES

The USD index is little changed ahead of remarks from Fed chair Powell today. Several Fed officials spoke yesterday, urging caution before cutting rates further while also noting that inflation appeared to be stabilizing. On the other hand, Governor Miran warned that central bank policy is too tight and will lead to downside risks in the labor market. Friday will offer PCE inflation data for August, a key focus for investors as markets continue to gauge the extent to which tariffs have elevated inflation. Provisional purchasing managers’ surveys for September due later in the morning will give updates on activity in the manufacturing and services sectors on Tuesday. Investors will be looking for any evidence of worsening economic conditions for clues on the rate path from the Fed.

Euro futures are little changed in overnight trade following the release of eurozone PMI figures, which showed that private sector activity expanded this month. Composite PMI rose to 51.2 from 51.0 in August, hitting its highest level in 16 months. Growth was carried by the services sector, which notched a reading of 51.4, helping offset an unexpected decline in the manufacturing sector which saw a contraction in activity in August with a reading of 49.5. In Germany, activity reached its highest level in 16 months with a composite PMI reading of 52.4, seeing a similar tale with a growth in services activity helping offset an unexpected decline in manufacturing activity. Eurozone companies expressed their least optimistic outlook in four months, with sentiment hitting its lowest this year in the factory sector. Looking ahead, Germany’s Ifo business climate index is due on Wednesday, Germany’s GfK consumer climate survey is due Thursday, alongside the French consumer confidence survey. Eurozone money supply data is also out on Thursday.

British pound futures are little changed following the release of underwhelming PMI figures. UK composite PMI fell to 51 in September from 53.5 in August, reflecting the slowest pace of expansion in private sector activity since May. The slowdown in private sector activity was attributed to a fall in activity in the services sector, which saw a reading of 51.9 vs. 54.2 in August and an even steeper contraction in manufacturing with a reading of 46.2 vs 47 in August. Firms reported a lack of willingness-to-spend by clients and cost burdens rising sharply due to wage pressures, which drove firms to increase their prices charged, attributed to a rise in the services sector as prices charged fell in the manufacturing sector. Business confidence weakened for services providers due to challenging economic conditions and heightened uncertainty while manufacturers were more optimistic about future growth, supported by increased investment. Overall, employment levels decreased for the 11th straight month. UK public sector borrowing data for August jumped to 18 billion pounds from 14.4 billion pounds in August 2024. Rising government debt continues to raise concerns about the sustainability of UK public finances, putting upward pressure on gilt yields and mounts a challenge for finance minister Rachel Reeves in her November budget. Several Bank of England officials will speak this week, potentially offering clues on the bank’s next steps after it held interest rates steady at 4.0% last week and reduced the pace of quantitative tightening.

Japanese yen futures are little changed in what is set to be a lighter volume day for the Yen as Japanese financial markets are closed for a national holiday. An unexpected dissent by two board members, who voted to hike rates at the Bank of Japan’s policy meeting last week has shifted investor focus back to how soon the BoJ will hike rates. Markets remain unsure whether the BOJ’s policy path will be affected by the October 4 leadership race in Japan’s ruling Liberal Democratic Party to replace outgoing Prime Minister Ishiba. Inflation data due Friday is expected to show that consumer inflation excluding fresh food prices in the Tokyo metropolitan area rose 2.8% in September from a year earlier, according to a poll of economists by data provider Quick. That would follow a 2.5% increase in August and may bolster expectations that underlying price pressures remain sticky.

Australian dollar futures edged higher despite PMI figures showing a slowdown in growth with a composite reading of 52.1 in September, down from 55.5 in August, marking the lowest reading in three months, albeit a twelfth-straight month of expansion. Output growth eased across both manufacturing and services, driven by slower inflows of new work, with goods new orders contracting at the fastest pace in eight months. Input prices remained elevated, particularly in manufacturing, while selling price inflation eased to a three-month low due to softer services output prices and strong competition keeping prices lower. Business confidence fell to its lowest level in a year amid concerns over trade policy and growth prospects while employment continued to rise. Market focus will shift to August inflation data due Wednesday. July’s inflation figures showed a surprise uptick in inflation, coming in at 2.8% on the year, fueled by an increase in electricity prices. Westpac forecasts a 3.1% on-year rise in the monthly CPI indicator for August, highlighting risks from a recovery in homebuilding costs. The Reserve Bank of Australia will most likely not be too concerned about the rise in inflation, but the data if hotter than expected, could signal that the RBA will not cut rates as deeply as expected.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve as markets digest comments from several Fed officials ahead of remarks from Fed Chair Powell, who will speak later today. Vice Chair for Supervision Bowman and Atlanta’s Bostic are also set to speak today. Several officials called for caution on additional rate cuts, citing signs of stabilizing inflation, while new Governor Stephen Miran warned the Fed was misjudging policy tightness and endangering the labor market without deeper easing. Markets await today’s preliminary S&P Global Manufacturing and Services PMIs at 8:45 a.m. CT, a Reuters poll showed expectations for manufacturing and services to dip to 52.0 and 54.0 from 53.0 and 54.5 previously. The Treasury will also auction $69 billion in two-year notes. Meanwhile, congressional budget talks to avert a September 30 government shutdown have added to investor uncertainty.

PCE inflation data will be crucial for Treasurys. Markets are currently pricing in a 92% chance that the Fed will cut rates in October. On the inflation front, a cooler-than-expected reading could clear the path for more easing out of the Fed and set aside worries that tariffs will cause persistent price increases. On the other hand, a strong reading will likely reinforce a hawkish sentiment and the Fed’s “meeting-by-meeting situation” regarding the outlook for interest rates. Fed Chair Powell characterized last week’s rate cut as a risk management cut rather than the start of a new easing cycle. Powell also added that the Fed is well positioned to move on any economic developments, but the committee felt cutting rates was appropriate given the downside risks to the labor market. Powell also noted that “no risk-free path” is available for the Fed. Six members of the FOMC projected no more interest rate cuts by the end of the year, while one member expects the central bank to hike rates.

On the supply front, the Treasury will auction $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday.

The spread between the two- and 10-year yields fell to 53 bps from 55.1 bps on Monday.

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