Tech Pressure Continues

MACRO FRAME

January’s CPI and employment data reinforced the case for an extended Federal Reserve pause, leaving attention to Friday’s PCE release, though odds of near-term easing out of the Fed are unlikely. Equity volatility continues to reflect rapid sentiment shifts rather than broad macro stress, as investors rotate between perceived winners and losers.

STOCK INDEX FUTURES

Equity indexes are lower as investors continue to trim technology exposure globally, with France’s Dassault Systèmes and Germany’s Siemens posting notable losses in European trading amid persistent concerns that advances in AI could disrupt legacy industrial and enterprise software models. The uncertainty has reinforced a rotation into more defensive and “AI-insulated” sectors, including utilities, consumer staples, mining, construction, and telecommunications.

On the earnings front, results from Walmart and Palo Alto Networks are due this week, though broader market focus is likely to center on Friday’s release of the Fed’s preferred inflation gauge, the PCE index. The report should provide clearer insight into underlying price trends following last week’s data, while expectations for near-term policy easing remain limited.

Watch point: Following January’s jobs and inflation prints, focus on sectoral job gains will gain greater scrutiny for signals on labor market health.

CURRENCY FUTURES

US DOLLAR: The USD Index is modestly higher as investors reposition ahead of the latest FOMC meeting minutes and PCE inflation data due later in the week, with liquidity thinner as several Asian markets remain closed for the Lunar New Year. Recent data have delivered mixed signals, combining firm job growth with a cooling headline inflation trend, though pockets of price stickiness persist across select sectors.

The January FOMC minutes should provide incremental insight into policymakers’ thinking, though a clearer policy signal is more likely to emerge in March alongside updated dot-plot projections. Until then, incoming economic data are expected to remain the primary driver of rate expectations and near-term dollar direction. Markets are broadly centered on summer easing rather than an imminent move, with expectations of a cut come June or July, with July’s meeting being fully priced in.

Watch point: This week’s PCE data and the tone of the FOMC minutes will determine whether the dollar can build momentum or remain range-bound.

EURO: The euro softened against the dollar as a firmer greenback and weaker industrial data weighed on the currency. Eurozone industrial production declined 1.4% in December, broadly in line with expectations, while November’s reading was revised lower, reinforcing the picture of subdued manufacturing momentum.

Attention now turns to flash PMI releases for France, Germany, and the broader euro area later in the week, which should provide updated signals on economic activity, though little deviation from recent trends is anticipated. Additional pressure came from Germany’s ZEW economic sentiment index retreating from a four-year high, underscoring expectations for a fragile recovery in the bloc’s largest economy.

Looking ahead, wage data due Friday are expected to show continued moderation, a dynamic that aligns with the European Central Bank’s neutral policy stance and supports progress toward its 2% inflation target. Despite near-term softness, the euro continues to draw structural support from capital flows and relative equity performance.

Watch point: Sustained appreciation above $1.20 would materially raise expectations of verbal or policy intervention from ECB officials, though action from the bank is unlikely.

BRITISH POUND: Sterling is lower following softer UK labor and wage data, which showed the unemployment rate rising to 5.2% in Q4, its highest level outside the pandemic since 2015, while wage growth continued to cool. Average earnings excluding bonuses slowed to 4.2% year-over-year from 4.4%, with private-sector pay growth easing to 3.4%, reinforcing signs of gradually loosening labor conditions.

The data strengthens the case for near-term policy easing from the Bank of England, particularly when paired with last week’s narrower-than-expected vote to hold rates steady. Markets currently price roughly a 75% probability of a 25 bps cut at the March meeting, with attention now turning to upcoming inflation data for confirmation. Headline CPI is expected to ease toward 3% in January; a softer-than-forecast reading reminder would likely cement expectations for a March move, while firmer price pressures could push easing expectations toward the spring or early-summer meetings.

Watch point: Expectations for near-term easing are likely to build if inflation data remains accommodative, leaving sterling vulnerable to further downside against the dollar should rate-cut timing expectations solidify a move in March.

JAPANESE YEN: The yen strengthened against the dollar, reversing Monday’s losses that followed weaker-than-expected GDP data showing the economy expanded just 0.2% in Q4 2025 versus forecasts for 1.6%. While the softer growth print is unlikely to materially alter the Bank of Japan’s policy trajectory, expectations for a near-term rate hike remain subdued, with markets largely pricing the next move around mid-year.

Support for the currency continues to come from equity inflows and improving sentiment toward Japan’s growth outlook, as expansionary fiscal and industrial policies are viewed as catalysts for a potential cyclical upswing. However, Prime Minister Takaichi’s fiscal ambitions may moderate the pace of further appreciation, suggesting gains can extend but are unlikely to accelerate unchecked.

Watch point: Improving sentiment toward Japan’s growth outlook should lend near-term support to the yen, though concerns over expanded fiscal spending may act as a headwind to further appreciation.

AUSTRALIAN DOLLAR: The Aussie is lower as meeting minutes from the Reserve Bank of Australia’s most recent meeting, where the bank raised rates, showed the board was uncertain about whether further hikes would be needed. However, policymakers did note that inflation has largely been above target for the past three years, leaving the door open to further hikes. Markets currently imply roughly a 83% probability of no changed in rates at the March  meeting, with expectations for another hike in May or June.

Watch point: Evidence of sustained moderation in core inflation or a clearer slowdown in household demand would likely temper tightening expectations, while continued strength in price and spending data could keep policy bias firm.

INTEREST RATE MARKET FUTURES

Treasury yields are moving higher at the front end and remain lower at the long end as a tech selloff in the equities markets supported a global bond rally ahead of the Fed’s meeting minutes on Wednesday and PCE inflation data later in the week. January’s CPI print reinforced a broader disinflation trend, but services inflation remained sticky.

Core prices rose 0.3% month-over-month in January, a modest pickup from December’s 0.2% pace, suggesting underlying inflation pressures remain present even as the broader year-over-year trend continues to ease. The increase was driven largely by services categories, a sector which FOMC members have noted as tricky for bringing inflation down and will likely be noted at upcoming policy meetings. Paired with resilient labor data, the case for a patient Fed stance is expected.

Market-priced odds for any near-term easing remain subdued, with pricing favorable to a cut in June or July, with July’s meeting being fully priced in. Markets are currently pricing 62 bps of total easing by year-end. The 10-year yield is 1.5 bps lower to 4.041%.

Watch point: With labor data pointing to continued stability and January’s core inflation rising 0.3% on the month, even as the year-over-year pace eased slightly, a summer rate cut remains the base case rather than an imminent move.

The spread between the two- and 10-year yields is 62.00 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.424%.

 

 

Interested in more futures markets?  Explore our Market Dashboards here.