Powell Comments Offer No Surprises

STOCK INDEX FUTURES

Stock index futures are drifted higher as Alibaba shares jumped nearly 9% in premarket trading after the company’s CEO announced plans to raise AI spending beyond its original $50 billion-plus target. Micron Technology gained more than 1% following better-than-expected earnings and a strong outlook, while Nvidia (0.8%) and Broadcom (0.5%) also traded higher before the open. Fed Chair Powell offered remarks yesterday that were in line with his previous comments last week. Powell noted that near-term risks to inflation are tilted to the upside and risks to employment to the downside.

US Composite PMI fell to 53.6 in September from 54.6 in August, below market expectations. While the reading pointed to a second consecutive month of softer growth, it still signaled the strongest quarterly expansion since late 2024. Service-sector activity slowed to its weakest pace since June, and manufacturing output growth eased from August’s 39-month high. Services PMI fell to 53.9 in September of 2025 from 54.5 in the previous month, while manufacturing PMI eased to 52 in September 2025 from an over three-year high of 53 in August. On the inflation front, input costs jumped to their highest level since May—driven largely by tariffs—marking the second-fastest increase in over two and a half years. However, firms reported the slowest rise in output charges since April, as weak demand and rising competition limited their ability to pass on higher costs. On a more positive note, business confidence climbed to a four-month high. The data raises concerns about earnings momentum, with the limited ability to pass on costs likely to pressure profit margins, especially for firms with less pricing power or high exposure to imported goods.

Building permits in the United States fell by 2.3% to a seasonally adjusted annualized rate of 1.330 million in August, revised up from a preliminary estimate of a 3.7% decline or 1.312 million permits. New home sales figures for August will follow at 9:00 a.m. CT.

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, August existing home sales, 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 higher after Fed Chair Powell reiterated a cautious approach to monetary policy, although his comments largely reflect his remarks from last week. Powell acknowledged that no risk-free policy path is available for the Fed, warning that premature easing could exacerbate inflation while excessive policy restriction could hurt the labor market. PMI data continued to point to an expansion in activity, while firms surveyed flagged aggressive inflationary input costs, which they were most unable to pass onto consumers given weakening demand conditions and a competitive price landscape. 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.

Euro futures are lower following the release of a weaker-than-expected German business sentiment survey that weighed on the currency. The Ifo Institute said Wednesday that its business-climate index declined to 87.7 in September from 88.9 last month. The decrease breaks a streak of gradually improving sentiment among German companies since the beginning of 2025. Companies polled were less satisfied with current conditions and gloomier about their outlook, with both manufacturing and services seeing a deterioration. This follows yesterday’s 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 helped offset an unexpected contraction in manufacturing activity. In Germany, growth in the services sector helped 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 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 fell lower on a stronger dollar after Fed Chair Powell struck a cautious view on the need for more rate cuts, offering remarks that were unchanged from his previous comments last week. The UK’s composite PMI fell to 51 in September from 53.5 in August, signaling the slowest pace of private sector expansion since May. The decline was driven by a sharp slowdown in services activity and a deeper contraction in manufacturing, reflecting waning client demand and rising wage-related cost pressures. Firms responded by raising prices in the services sector, while manufacturing prices declined, highlighting diverging inflationary dynamics. Business sentiment weakened among service providers amid economic uncertainty, while manufacturers remained cautiously optimistic due to increased investment. With employment falling for the 11th consecutive month, the data points to softening labor market conditions and growing risks to near-term UK growth momentum. 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. he BoE’s chief Economist Huw Pill, one of the Monetary Policy Committee members who has been most concerned about inflation, said on Tuesday that he was more comfortable with the outlook for price pressures in Britain than he was earlier this year. Markets are not pricing any rate cuts until March.

Japanese yen futures are lower after data showed Japan’s Manufacturing PMI declined to 48.4 in September from 49.7 in August, falling short of market forecasts of 50.2. The latest figure marked the 14th contraction in factory activity over the past 15 months and the steepest decline since March, driven by the fastest drop in new orders since April, while output fell at the sharpest rate in six months. Foreign sales continued to fall, while input costs rose due to higher labor costs resulting in a rise in output prices. Services sector activity edged down to 53 from 53.1 in August, marking the sixth straight month of an increase in services sector activity. Survey respondents noted that costs pressures remained, prompting a rise in output prices. 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 are higher after new data showed that CPI inflation rose 3% year-over-year in August, above expectations of a 2.90% rise and hotter than July’s figure of 2.80%, while also marking the highest reading since July 2024. Inflation was primarily driven by housing costs, with housing inflation rising 4.5% from 3.6% in July. However, the annual trimmed mean inflation eased slightly to 2.6% in August from 2.7% in July. The data let markets to increase expectations that the Reserve Bank of Australia will hold interest rates steady next week. Governor Michele Bullock said on Monday that the economy was in a “good place” with growth and inflation, sending signals that the bank is in no urgency to cut rates. PMI figures showed 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. 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.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve as markets digest comments from Fed Chair Powell, who strayed little from his previous remarks. Governor Bowman suggested last week’s rate cut would be the start of a series of cuts, while Powell remained cautious in his outlook. Other officials called for caution on additional rate cuts, although citied signs of stabilizing inflation, while new Governor Stephen Miran warned the Fed was misjudging policy tightness and endangering the labor market without deeper easing.

PMI continued to point to an expansion in activity, while firms surveyed indicated that , input costs jumped to their highest level since May, driven largely by tariffs, marking the second-fastest increase in over two and a half years. However, weaker demand conditions and a competitive price landscape limited firms’ ability to raise selling prices, which increased at the weakest rate since April. The data signals that firms are absorbing the costs of tariffs helping limit inflation felt by consumers, coming at a crucial time ahead of Friday’s PCE inflation data. 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.

Yesterday’s 2-year note auction results were average, with the auction stopping at 3.571%, vs. the 3.571% when-issued bid. The bid-to-cover ratio was 2.51, below the six-auction average of 2.60. Indirect bids totaled 57.7%, also below the 61.4% average, with direct bids totaling 30.8% above the average of 27.3%, leaving dealers with an 11.5% take vs. the average of 11.3%. The Treasury will auction $70 billion in five-year notes today and $44 billion in seven-year notes on Thursday.

The spread between the two- and 10-year yields rose to 54.6 bps from 53 bps on Tuesday.

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