Big Tech Meeting at White House

MACRO FRAME

US economic data this week (PMI, payrolls), paired with a host of Fed speakers is likely to significantly shape the near-term outlook for the Fed.

STOCK INDEX FUTURES

Equity index futures moved modestly higher ahead of today’s JOLTS data. Bond yields fell from their recent highs, while oil prices slipped overnight. Data from LSEG shows the 60-day rolling correlation between oil prices and stock index futures is at its highest level since late May, suggesting traders are increasingly treating oil as a direct-impact macro variable. Outside of today’s data, the watchpoint will center around a meeting with President Trump and several tech executives including Meta CEO Mark Zuckerberg, Anthropic’s Dario Amodei, Nvidia CEO Jensen Huang, and OpenAI President Greg Brockman to discuss AI. Several industry names and government officials have recently been calling for more regulation of the technology, while Trump has downplayed concerns, highlighting the importance of maintaining America’s edge over China. A strong JOLTS reading will come at an already-sensitive point in the rates cycle, with markets assigning a 70% probability of an October hike, and are priced for 52 bps of tightening by January. The repricing reflects both strong US activity and a more persistent energy-driven inflation concern and is likely to negatively impact equities, though most focus will center around Wednesday’s PCE inflation release. Several Fed speakers are due to speak this week and expected to issue hawkish remarks; weak data could push back tightening expectations and lift the equities. However, following last week’s strong PMI data, further indications of economic strength will validate rate-hike expectations and push yields higher, creating more downside potential for equities.

Watch point: Despite tech volatility, the earnings backdrop suggests bullishness, despite the advent of a new hiking cycle.

CURRENCIES

US DOLLAR: The USD index rose 0.10% overnight to 101.30, ahead of today’s JOLTS data. The move higher reflects the increase in in near-term tightening expectations, with markets now  seeing a 70% chance of a hike at October’s meeting, up from 66% to start the week. A strong read from today’s JOLTS will likely validate those expectations, while a downside reading could relieve some pricing expectations and see the dollar lose some modest strength. August PCE, September payrolls, ISM manufacturing PMI, and several Fed speakers will also play a large role in validating or rejecting market expectations of an October hike and consequently the dollar’s move higher since 9/16. Fed speak is expected to be hawkish, which will leave direction dependent upon this week’s data releases. Recent economic data has indicated strength in the economy and supported market expectations of another rate hike in October or December.

Watch point: A reduction in tightening expectations for the Fed will act as the greatest risk to the dollar maintain its move above the 100 level.

EURO: The euro fell 0.20% to $1.1347. Spanish inflation data overnight showed prices rose 4.9% YoY in September, up from 4.3% in August and expectations for 4.7%. The rise in prices was primarily driven by higher fuel costs. Core inflation rose to 3.1% YoY from 2.9%, its highest level since March 2024. Despite the data, market expectations of an October rate hike from the European Central Bank have fallen from yesterday, now priced at 40% odds compared to 50% to start the week. Also weighing on the euro is speculation over the potential political environment come springtime. Chancellor Friedrich Merz could limit reforms following recent parliamentary losses, while French markets remain under pressure from worries over high debt and political gridlock ahead of its 2027 presidential election. Meanwhile, three-month risk reversals on the euro, which reflect the price of options to buy and the price to sell, posted their biggest weekly decline since the beginning of the Iran war last week. The euro has experienced a raft of data and language from policymakers very similar to the Fed, supporting prospects for a potential October rate hike. Money markets roughly expect the ECB to hike as much as the Fed in the next 12 months. This sets up this week’s inflation data to either validate or reject expectations of a potential October hike. If inflation comes in hotter-than-expected, markets are likely to increase expectations of near-term tightening, supportive of the euro.

Watch point: Broader price direction will be subject to Fed-ECB policy expectations, which has been favorable to the dollar in advent of a hawkish repricing in Fed policy expectations the near-term.

BRITISH POUND: Sterling fell 0.20% to $1.3227. Revised Q2 GDP data tomorrow will gather attention for the sterling outside of this week’s US data. Prime Minister Burnham will speak today, his first conference speech as prime minister, likely discussing the nation’s debt load. Elsewhere, data from the Bank of England showed that unsecured lending to the public rose at its fastest annual pace since 1993. Money markets are priced for four rate hikes over the next 10 months from the BoE, and see an 79% chance of a move in November. However, that pricing appears at odds with current economic conditions in the country, which will limit the central bank from tightening rates as aggressively as markets expect. Revised second-quarter GDP data out tomorrow, followed by the final estimate of manufacturing PMI data on Thursday could impact this narrative.

JAPANESE YEN: The yen is little changed at 157.29 yen per dollar. The yen is still finding support from currency diplomat Atsushi Mimura’s comments on Monday, who said that markets should take at face value the “very clear” message Tokyo and Washington delivered last week on the yen. Last week, Finance Minister Katayama and Treasury Secretary Bessent reaffirmed their cooperation to combat yen weakness. Focus is also on The Bank of Japan’s Tankan corporate sentiment survey on Thursday, which will be followed by the BOJ’s summary of opinions from its September meeting, where it raised its policy rate to 1.25%. Sentiment regarding the currency has been damaged after the BOJ underwhelmed the investors following its divided decision to raise rates and Governor Ueda’s unconvincing press conference at the meeting. The greatest near-term upside risk for the currency remains market intervention. Markets are pricing roughly a 40% chance of a hike in October and see 23 bps of tightening by year-end.

Watch point: While markets are underwhelmed at the BOJ, a path for additional rate hikes looks to be  appears to be the primary scenario.

AUSTRALIAN DOLLAR: The Aussie is 0.33% lower at $0.6991 following the Reserve Bank of Australia’s decision to raise rates by 25 bps to 4.60%. The board unanimously voted to raise its cash rate, the fourth hike this year. RBA Governor Bullock said the board believed financial conditions were now tight but were unsure if that would be enough to bring inflation down. She also noted policy worked with a lag and the board wanted to see how the hikes already delivered would impact the economy, a signal markets took as a potential end to further tightening. Bullock referenced that inflation data will play the greatest role in determining where policy lands in the future. That leaves Q3 inflation figures will to serve an outsized role in determining RBA policy.

Watch point: August’s hiring figures argue for a higher-for-longer stance, leading the focus to Q3’s inflation data.

TREASURY FUTURES

Yields moved lower across the curve amid a slight drop in oil prices as markets await today’s JOLTS data. Notably, October rate hike expectations have risen 4% from Monday to 70% odds of a hike in October. This comes ahead of this week’s August PCE, nonfarm payrolls, ISM manufacturing PMI, and several Fed speakers. Last week’s strong PMI data has reflected economic strength and further indications of growth are likely to validate rate-hike expectations and push yields higher, leaving today’s JOLTS data as the central catalyst to yield direction. A solid report will reinforce expectations of tighter policy in October. This week’s Fed speakers are expected to issue hawkish remarks leaving more emphasis on this week’s data, mainly Wednesday’s PCE inflation; weak data could push back tightening expectations and see a modest pullback in yields.

Broadly, the story for the bond market remains little changed. Thus far, markets have absorbed the rise in yields because nominal growth, corporate profits, and AI-related investment remain robust. Evidence of weak Treasury-auction demand, deteriorating market liquidity, a sharper rise in mortgage spreads, or further acceleration in inflation expectations would signal that risk is becoming more material.

Watch point: Inflation risk, fiscal and corporate supply, capital competition and term premium will be key factors in determining whether the yield curve maintains its recent flattening or falls into a bear steeping move.

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