FOMC Minutes, Fedspeak Highlight Today’s Calendar

STOCK INDEX FUTURES

Stock index futures are higher as markets turn their focus to the Fed’s upcoming minutes from its September meeting out later today. Markets have largely shrugged off any concerns regarding the government shutdown and turned their attention to corporate events in the absence of official US economic data. Economically sensitive sectors, including homebuilding, airlines, and transport, lagged yesterday, while tech stocks were mixed. With official US data paused, markets continue to rely on auxiliary figures and Federal Reserve remarks, which pointed to potential rate cuts amid uncertainty.

CURRENCY FUTURES

US DOLLAR: The USD index is higher for the third straight day this week, benefitting from safe-haven demand following political uncertainty in France and Japan. Focus will center around the Fed’s September meeting minutes out later today. Investors will scrutinize opinions regarding the risks to employment and inflation and any signals on how interest rates will move at the Fed’s meeting later this month and in December. Fed Funds futures are pricing a 94.6% chance that the Fed will cut rates in October and an 82.4% chance of a cut following in December.

EURO: The euro is lower as France’s political woes continue to weigh on the currency and raise term premia for bonds. France is unlikely to pass its 2026 budget, meaning lawmakers will need to pass emergency funding legislation to authorize government spending until a full budget is approved. Socialist Party leader Olivier Faure said on Wednesday his party could not back the government’s budget plan as it currently stands. On the data front, German industrial production slumped 4.3% month-over-month in August, marking the sharpest decline in over three years, as a contraction in car manufacturing weighed on the reading. The decline in industrial production follows a similar tale to German manufacturing orders, which fell 0.8% in August. Orders were also dragged lower by a weak automotive sector and declining demand from overseas. Italian industrial production figures out Friday will round out the week on the data front.

BRITISH POUND: The pound slipped against the dollar as pressure from selling in the yen and euro weighed on the currency. Bank of England chief economist Huw Pill is scheduled to speak later today, and policymaker Catherine Mann is set to speak on Thursday. Both Pill and Mann voted with the majority to keep interest rates unchanged at the last BoE meeting in September. Investors remain on edge regarding potential tax hikes to meet fiscal rules in next month’s budget. Markets will monitor finance minister Rachel Reeve’s ability to balance self-imposed fiscal rules and economic growth. Strong taxes could present a downside for the sterling. It is a quiet week for the British economic calendar, with Thursday’s RICS house price survey for September being the only notable data release. Markets are pricing in a 10% chance of a rate cut at the BoE’s November meeting as the central bank continues to battle persistently high inflation.

JAPANESE YEN: The yen continued to fall, hitting its lowest level against the dollar since February as softer-than-expected wage data dimmed prospects of a rate hike from the Bank of Japan. The yen also remains under pressure from the surprise election of Sanae Takaichi, who is not afraid of deficit spending and looser fiscal policy. Real wages in Japan fell 1.4% on a yearly basis, marking the eighth consecutive monthly decline as inflation continues to outpace wage growth. The figure complicates the BoJ’s rate hike path, as Governor Kazuo Ueda recently stated the central bank would resume rate hikes if the economy and prices move as projected, which the wages data did not. Takaichi has raised concerns from investors in Japan over the country’s debt sustainability and consequently weighed on the yen due to her strategy’s implied inflationary effects. Bond markets in Japan have spiked in reaction to her election, with Japan’s 30-year bond jumping to record highs this week while the 10-year yield rose toward a 17-year high this morning. Japan’s public debt is twice the size of its GDP, and with inflation rising and the Bank of Japan trying to raise interest rates, investors are demanding a higher term premium for JGBs.

AUSTRALIAN DOLLAR: The Australian dollar weakened as the currency extended its three-day losing streak. Consumer sentiment fell in Australia, with the Westpac-Melbourne Institute Consumer Sentiment Index falling by 3.5% month-over-month in October, marking the steepest contraction since April. The drop in sentiment underscores rising household concerns over persistent inflation. Elsewhere, ANZ-Indeed Australian Job Ads dropped 3.3% in September, the third consecutive decline. On the inflation front, the Melbourne Institute’s monthly inflation gauge showed a 0.4% increase in September, up from a 0.3% drop in August. The uptick in inflation, although not an official reading, added to market sentiment that official Q3 inflation could prove hotter than expected, something that the Reserve Bank of Australia had noted last week as it left rates on hold. Speculation of a November rate cut from the RBA continues to fall as markets now imply around a 35% chance of a quarter-point rate cut in November. Markets will look to comments from RBA officials this week for clues on the policy path in November.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve as safe-haven buying lifted prices ahead of today’s 10-year note auction and September meeting minutes. The economic data calendar is light but heavy on Fedspeak. St. Louis’ Musalem (voter) at 9:20 a.m., with Fed Governor Barr speaking shortly after at the same event. Dallas’ Logan (nonvoter) and Chicago’s Goolsbee speak at an event at 1:15 p.m. and 7:15 p.m., respectively. Minneapolis’ Kashkari is speaking at 3:15 p.m. and Fed Governor Barr is speaking at 5:45 p.m. Investors will scrutinize the Fed’s meeting minutes for any signals about whether more interest rate cuts could come in October and December. Markets are currently pricing a 94.6% chance of a 25 bps cut in October and an 82.4% chance of a following cut in December. Any insights on policy moves and views on the double-sided risks to employment and inflation will be watched closely.

Yesterday’s 3-year note auction saw solid results and aggressive bidding. The auction fetched a bid-to-cover ratio of 2.66, above the six-auction average of 2.56, while indirect bids took 62.7%, below the average of 64.1%; direct bids totaled 26.6%, well above the 20.5% average, which left dealers with a below-average take of 10.7%. Thursday’s $22 billion 30-year bond auction will round out the week on the supply front.

The New York Fed’s consumer inflation expectations survey rose to 3.4% in September, the highest in five months, compared to 3.2% in August. Consumers expect higher prices for food, gas, medical care, and rent. Longer-term inflation expectations rose slightly but remained well-anchored, with five-year expectations increasing to 3% from 2.9% while those for the three-year-ahead horizon held at 3%.

The spread between the two- and 10-year yields fell to 54.00 bps from 55.70 bps on Tuesday, while the 2-year yield, which reflects interest rate expectations, slipped to 3.560%.

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