Markets Ready for Earnings and Data

STOCK INDEX FUTURES

Stock index futures are higher as Wall Street prepares for a fresh round of earnings and economic data later in the week, as well as President Trump’s August 1 deadline for trade deals. Goods trade balance data for June showed a $85.99 billion deficit, over $10 billion lower than May’s reading in a sign that tariffs and tariff front-running have significantly slowed the pace of imports into the country. Earnings season rolls on with Starbucks reports watched for signs of turnarounds underway, while Spotify is expected to issue cautious guidance in its results. Boeing reported second-quarter earnings that topped expectations and stemmed the cash burn that has been plaguing the company. On the data front, the JOLTS job openings report and CB consumer confidence results are due later in the morning; job openings are expected to come in at 7.51 million.

President Trump was expected to iron out final details of the UK agreement in meetings with British Prime Minister Keir Starmer on Monday. That leaves some of the biggest outstanding deals with Mexico, Canada, and China. US and Chinese officials are set to continue their talks on Tuesday, where the two sides are expected to discuss extending their trade truce beyond the current August 12 expiration date.

Looking ahead, the Fed meeting, the August 1 deadline, the jobs report, Q2 GDP, and inflation data make up a busy week of economic data paired with a slate of earnings from 164 members of the S&P 500. Big tech giants Apple, Amazon, Microsoft, and Meta will drive the direction of markets to kick off August. Coinbase, Exxon Mobil, and Chevron are also among the big names highlighting the schedule. On the data front, any signs of a cooling job market, weakening economy, and deteriorating consumer confidence could increase prospects of a Fed rate cut in September or October.

So far, corporations have been shouldering the burden of tariffs, hurting company profits. Because tariff rates have been so uncertain and volatile, companies have waited on adjusting prices until they get a better picture of what costs their supply chains will face. The import price index, which tracks what importers pay for many foreign-produced goods before tariffs are levied, has held steady in recent months, in a sign foreign suppliers aren’t broadly slashing their prices to offset costs for their US customers. Broader hits to consumers could be on the way. In May, Walmart said that it had started raising some product prices to offset the cost of tariffs and that more price increases would come this summer.

CURRENCY FUTURES

The USD index is higher, supported by a weaker euro following its strong gain on Monday. The dollar has been buoyed by the trade deal between the US and EU, which is seen as favoring the US and also bringing market certainty and avoiding a global trade war. Trump said on Monday that most trading partners that do not negotiate separate trade deals would soon face tariffs of 15% to 20% on their exports to the US. The Fed is expected to hold rates steady later this week, with markets already pricing in a non-event from the meeting, although attention will be paid to Trump’s reaction to the meeting. Labor data, Q2 GDP, and inflation data are all due later this week, which could provide insights into the Fed’s future moves. Any signs of a cooling labor market and weakening economy are likely to add to speculation of a rate cut restart in September. Any signs of delay of a Fed restart in the rate-cutting cycle could provide support for the dollar.

Euro futures are lower as the euro hit a one-month low against the dollar as investors see the deal between the US and EU as largely favoring the US. The deal sees the EU face a 15% tariff on most goods, including cars, semiconductors, and pharmaceuticals. Tariffs at that level are expected to lower the EU’s GDP by 0.3%, with Germany being hit the hardest, dampening auto exports, while France and Spain would be less affected. The 15% baseline tariff will keep average levies at a similar level to what they are currently because they will not be cumulative with the duties that existed before Trump’s return to office this year. The EU has said it is already facing an effective average tariff rate that is close to 15% because Trump’s 10% baseline tariff was stacked on top of the US’s pre-existing tariffs. Looking ahead, the first estimate of Q2 GDP is due on Wednesday, and provisional inflation figures for July are due Friday. GDP is expected to grow 1.2% on an annualized basis, and inflation is expected to remain at 1.9% on an annualized basis. With growth holding up and inflation at its target, the cutting cycle from the ECB may be at an end. German and eurozone manufacturing PMI data will be released Friday.

British pound futures continued their decline against the dollar. Mortgage approvals came in higher than expected, and consumer credit data topped expectations, showing an increase in borrowing despite the high inflation in the country. On top of higher inflation, growth has also been subdued, leaving investors divided on whether the Bank of England will increase the rate of its interest rate cuts later this year. The BoE meets next week, and markets are fully pricing in a 25 bps rate cut, one of only two more they expect this year. A final reading of manufacturing PMI for July is due on Friday, while the nationwide house price indicator is also due during the week. The data comes against a backdrop of concerns about a relatively weak economy and further concerns about fiscal sustainability from the government.

Japanese yen futures slipped against the dollar, ahead of the Bank of Japan’s policy decision on Thursday. The bank is expected to keep its policy rate at 0.5% at the end of its two-day meeting. The recent trade deal with the US offers some economic certainty, although it more or less reduces uncertainty. Policymakers at the BoJ will likely adopt a wait-and-see approach while they gauge the impact of tariffs on the Japanese economy. The central bank will also release its quarterly growth and prices outlook as well. On the data side, industrial production figures for June are due Thursday and expected to show a further decline in manufacturing. Retail sales for June and auto sales for July, out Thursday and Friday, respectively, will offer insights into household spending, while the June jobless rate is also due Friday. The BoJ will also conduct outright purchases across four sectors of Japanese government bonds. The Ministry of Finance will auction about 2.6 trillion yen of two-year sovereign notes Tuesday, which could draw institutional interest as two-year yields hover near their highest levels since April. Uncertainty over fiscal policy remains and could provide downside risks to the yen after questions about the leadership of the Liberal Democratic Party and coalition changes after speculation that Prime Minister Ishiba could resign in the future. Ishiba, however, reaffirmed his intention to remain in office.

Australian dollar futures are lower as markets turn their attention to trade talks between China and the US in Stockholm this week, with growing expectations that the current 90-day trade truce between the two economies could be extended. Focus in Australia will be on the release of Q2 consumer price index data on Wednesday, which is expected to show that inflation is in the bank’s 2%-3% target range. The data will make or break the case for a rate cut next month after the Reserve Bank of Australia kept interest rates on hold this month in anticipation of seeing inflation numbers come in line with expectations. Since keeping the official cash rate at 3.85% this month, the RBA has received data confirming that unemployment is again rising. RBA Governor Michele Bullock said the rise in the unemployment rate to 4.3% in June, which was met with alarm from some analysts, had been anticipated in its forecasts.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve, with a significant amount of buying happening earlier this morning.

The Treasury is widely expected to maintain current auction sizes for notes and bonds when it announces financing plans this week and will likely keep them steady for some time, forgoing issuing longer-dated debt to cover the government’s fiscal shortfall. Investors will be looking for guidance as to how long the Treasury can hold off on raising the size of the debt auctions used to fund the ballooning US budget deficit. The Treasury can afford to delay increasing auction sizes for longer-maturity debt given its focus on the issuance of more Treasury bills, where demand has been robust. Treasury recently ramped up issuance of short-dated bills to replenish its cash balance, which has shrunk to about $300 billion.

Yesterday’s two-year note auction results were solid, with bidding fairly aggressive and non-dealer demand strong but dominated by the direct bid. The details showed a bid-to-cover of 2.62 vs. the six-auction average of 2.59. Indirect bids totaled 55.3% vs. the 67.7% average, but direct bids totaled a whopping 34.4% (highest since October 2012) vs. the average of 20.8%, leaving dealers with 10.3%, below the 11.04% average take.

The 5-year note auction saw mediocre results, with bidding nonaggressive and non-dealer demand mixed. The details showed a bid-to-cover of 2.31, below the six-auction average of 2.38. Indirect bids totaled 58.3%, well below the 70.1% average. Direct bids totaled 29.5% vs. the average of 18.9%, leaving dealers with 12.3%, above the 11.0% average take.

On top of the Fed meeting, market attention will center around the release of the advance estimate of second-quarter U.S. gross domestic product on Wednesday; PCE inflation data, the Fed’s preferred measure, on Wednesday; and nonfarm payrolls figures for July on Friday. The closely watched ISM manufacturing survey for July is also released Friday. Any signs of a slowing labor market, a weakening economy, and a decrease in consumer confidence could add to bets for a Fed rate cut in September or October. However, this will need to be balanced against expectations that tariffs will stoke inflation. As long as the labor market holds up, firmer inflation will likely delay the restart of the Fed easing cycle. Friday will also be the August 1 deadline for the US to impose reciprocal tariffs, with Canada and Mexico still left without a deal. Market attention will also focus on US-China trade talks.

S&P Composite PMI data pointed to rising wage costs and tariffs directly contributing to steeper input price inflation, which firms passed onto customers. As a result, output price inflation increased, reaching one of the highest levels recorded of the past three years. The lack of labor market deterioration so far, paired with increasing price pressure from tariffs as evident in the PMI data, gives the Fed little reason to consider cutting rates at the July meeting and potentially the September meeting as the bank waits to see how prices are affected by tariffs. US tariffs are at their highest level in 90 years, and the effects will continue to show up late into the summer and beyond, and companies better understand what level of levies their imports will face and price their goods accordingly.

The 10-year Treasury yield is 4.39%, and the 30-year yield is 4.92%. The spread between the two- and 10-year yields rose to 47 bps from 46 bps on Monday.

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