Housing Starts Recover from May

STOCK INDEX FUTURES

Stock index futures are relatively unchanged, holding near record highs with support from positive economic data, despite a lackluster Netflix earnings result. Housing starts in the US beat expectations in June with 1.321 million new starts vs. an expected 1.290 million. The reading was also a 4.6% increase over May’s figure of 1.263 million, which was a 9.7% decline in starts from April. Building permits also beat expectations, albeit narrowly, with 1.397 million new permits vs. an expected 1.390 million. The reading was largely in line with May’s figure of 1.394 million.

Netflix’s second-quarter results failed to excite the market, pulling the stock about 1% lower in premarket trading. The streaming giant kicked off Big Tech earnings late Thursday with a wide profit beat and a solid revenue number. But investors likely wanted a bigger boost to full-year guidance to justify a raise on an already high valuation. Meanwhile, earnings continue to roll in, with focus on whether they continue to reflect steady resilience in corporate America. Friday’s highlights include 3M, American Express, and Charles Schwab.

Retail sales in June grew 0.6% following a steep -0.9% fall a month earlier. The reading beat estimates of a 0.1% increase. Core retail sales also grew more than expected, with a 0.5% increase in June, a turnaround from May’s -0.2%, and higher than the estimated 0.3% increase. The Philadelphia Fed manufacturing index for July came in well above expectations, with a reading of 15.9, higher than the -4.0 in June and above estimates of -1.2. Weekly jobless claims came in below expectations, with 221,000 new claims, lower than the previous week’s 228,000 and below the expected figure of 233,000. Data published yesterday showed that manufacturing output ticked up 0.1% last month after an upwardly revised 0.3% increase in May. It grew at a 2.1% annualized rate in the second quarter after expanding at a 3.7% pace in the January-March quarter.

The University of Michigan’s July preliminary consumer survey on Friday will give a more up-to-date snapshot of consumer sentiment. The survey will be published at 9:00 a.m. CT.

CURRENCY FUTURES

The USD index is lower but on track for a weekly gain, as strong economic data over the week gave the Fed more room to hold rates steady. Data released Thursday showed retail sales rebounded more than expected in June, while weekly jobless claims unexpectedly fell to a three-month low, signaling economic resilience despite tariffs. President Trump said on Wednesday it was “highly unlikely” he would fire Fed Chair Jerome Powell, offering some support for the greenback after reports that he was likely to, which caused the dollar to drop.

Euro futures are higher. Producer prices in Germany dropped by 1.3% on an annualized basis in June, following a 1.2% decline in May, in line with expectations. The overall decrease was largely driven by lower energy costs, which fell 6.4%. Excluding energy, producer prices increased by 1.3%, matching the pace seen in May. Eurozone inflation was confirmed at 2.0% per data released Thursday, as inflation has struck the European Central Bank’s target. The bank will likely cut rates only one more time before the end of the year following a cycle of easing. EU exports to the US fell for the second straight month in May after a first-quarter surge but remained higher than a year earlier. Exports to the U.S. from the European Union edged down to 46.2 billion euros, or around $53.6 billion, in May from 47.6 billion euros a month earlier, statistics agency Eurostat said Wednesday. Overall exports fell 0.8%, with the EU’s overall trade surplus rising to 13.4 billion euros. The EU extended its pause on retaliatory measures to US tariffs until early August and continues to push for negotiations. Markets remain focused on trade developments, with optimism persisting that a deal between the US and the EU could be reached before August 1.

British pound futures are higher as the dollar weakened in overnight trade. Payrolls in the UK fell for the fifth straight month, with the unemployment rate in May ticking up to 4.7%, up from 4.6% in April. Despite the data revealing a weak labor market, May payrolls were revised from -109,000 to -25,000. Wage data also showed a cooling; average weekly earnings excluding bonuses rose 5.0% from a year earlier in the three months to May, easing from 5.3% in April. Amid an uncertain economic outlook, alongside new payroll taxes and rising energy costs, businesses will likely continue to struggle to add staff. The weak figures will most likely ensure that the Bank of England will cut rates in August, as it will fuel worries among members of the bank over the health of the economy, despite the high inflation in the country. A slowdown in the labor market will also help ease inflation over the long term. The central bank anticipates wage growth to fall to around 3.75% by the end of 2025, with inflation at 3.5% in the third quarter.

Japanese yen futures are higher ahead of Sunday’s upper house election. Inflation in Japan eased slightly per new data, a welcome sign for the Bank of Japan, but high food prices remain stubborn. Core consumer prices, which excludes volatile fresh food prices, rose 3.3% on an annualized basis, down from May’s 3.7%. The drop in inflation was owed to cooler energy prices, which grew 2.9%, compared to the 8.1% increase in May, as government gas subsidies helped keep prices lower. The data showed no sign of easing in food inflation in June, with rice prices still up around 100% on the year despite government efforts to bring down the cost of the staple by releasing reserves. Excluding fresh items, food prices increased 8.2%, compared with May’s 7.7% rise. Despite stronger inflation, uncertainty over the trade picture with the US means the Bank of Japan is unlikely to rush into an interest-rate hike. On Friday, the BoJ is scheduled to conduct outright purchases in four sectors of the Japanese government bond market. Focus in the market now shifts to Sunday’s upcoming election, where polls show that Prime Minister Shigeru Ishiba’s coalition was in danger of losing its majority in the upper house.

Australian dollar futures are higher, paring some losses from yesterday’s session, as a surge in iron ore prices, driven by renewed optimism over Chinese economic support, lifted demand for the commodity-linked currency. The rally in iron ore came as China’s June import volumes hit a 2025 high, reflecting strong restocking demand and expectations of further policy support for infrastructure and property. Newly released labor data showed Australia’s unemployment rate unexpectedly rose to 4.3% in June, up from 4.1% in May, where it had held for nearly half a year. The data reveals a significant drop in full-time employment, as the economy only added 2,000 jobs in June while the participation rate ticked higher to 67.1%. The data comes on the heels of a decision by the Reserve Bank of Australia to hold rates steady at its latest meeting, a move that had caught markets and economists off guard. The bank said it wanted to wait for further data on inflation before cutting rates. Markets are expecting a rate cut in August from the central bank, barring any disastrous inflation data out of the country.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve, despite strong economic data released over the last couple of days, which supported the view that the Federal Reserve can afford to wait a little longer before cutting interest rates again. Wednesday’s reaction to President Trump’s comments over firing Powell made clear that renewed concern over the Federal Reserve’s independence has stoked fears about US economic stability. Fed Governor Adriana Kugler said Thursday it would be appropriate to keep rates steady for “some time.” However, Fed Governor Christopher Waller reiterated his call for a rate cut later this month, and San Francisco Fed President Mary Daly maintained her outlook for two cuts this year.

CPI inflation in June rose 0.3% in June after rising 0.1% in May. Inflation ticked up to 2.7% on an annualized basis. Core CPI inflation rose 0.2% in June, below expectations of a 0.3% rise, while core prices ticked higher from 2.8% to 2.9% on an annualized basis. PPI data showed no change in June. Core prices also did not change, while annualized PPI inflation ticked down to 2.3% from 2.7%, while core inflation fell to 2.6% from 3.2% a month earlier. Final demand goods prices rose 0.3%, the largest increase since February, with the jump in sector prices attributed to core goods, which are more sensitive to tariffs. Despite the cooler-than-expected reading, the data shows that tariff-sensitive sectors are beginning to feel price pressures, likely as a result of tariffs. The rise in final demand goods prices suggests that producers are facing higher costs on tariff-sensitive goods, which could lead to higher consumer prices in the future as businesses pass those costs along the supply chain.

Treasury Secretary Scott Bessent said that the Treasury does not plan to increase the auction sizes of the longer-dated debt at current interest rates, which could provide support for longer-term debt prices. That will leave the Treasury more dependent on short-term Treasury bill issuance to finance its operations. The Treasury is expected to ramp up net T-bill issuance in order to replenish its cash balance closer to $850 billion by the end of the quarter. More than $1 trillion in short-term T-bills are expected to hit the market over the next one and a half years following the increase of the debt ceiling. However, money market funds will remain steadfast buyers, providing ample demand for the short-term debt. Money market funds have a record $7.4 trillion in assets as of July 1 and plan to take on more supply. Estimates of new Treasury issuance over the next 18 months are between $900 billion and $1.6 trillion, higher than initial projections before the debt ceiling was raised.

The 10-year Treasury yield is 4.43%, and the 30-year yield is 4.99%. The spread between the two- and 10-year yields rose to 55 bps from 54 bps on Thursday.

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