Consumer Confidence Slips in June

STOCK INDEX FUTURES

Stock index futures are mixed; the S&P edged higher along with the Nasdaq, while the Dow traded near the open after a strong rally on Tuesday, which was spurred on by easing geopolitical tensions that lifted market sentiment.

US consumer confidence fell in June; the index fell to 93 from 98.4 in May, a surprise to analysts who had expected a reading of 99.5. The survey showed that consumers remain nervous about tariffs, as forward-looking expectations fell to 69 from 73.6 a month earlier. The labor market indicator also degraded, with the labor market differential falling to 11.1% from 12.7% in May. The figure is calculated by subtracting the share of consumers who think jobs are hard to get from those who think they are plentiful. Consumers also turned more pessimistic about future business conditions. In June, 16.7% said they expect business conditions to improve in six months, down from 19.9% in May.

Building permits for May were in line with expectations, falling -2.0% month-over-month at 1.394 million new permits vs. an expected 1.393 million. April saw 1.422 million new building permits. New home sales figures are due at 9:00 a.m. CT and are expected to show 694,000 sales in May. Existing home sales in the US rose by 0.8% in May, rebounding from the -0.5% drop in April. The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market.

Durable goods orders, the third estimate of US first quarter gross domestic product, weekly jobless claims, and pending home sales are due Thursday, followed by PCE inflation and the final June University of Michigan consumer confidence survey Friday.

CURRENCY FUTURES

The USD index is higher but failed to regain losses against other major currencies after finishing lower Tuesday. September contracts reached lows of 97.31 and finished in the mid-97 range, as safe haven demand waned following statements from Israel and Iran that both reaffirmed their ceasefire agreement. Fed Chair Jerome Powell reiterated the Fed’s wait-and-see stance on monetary policy, in contrast with remarks made by Fed Chair Michelle Bowman. Bowman, who is seen as a long-time hawk, said that the Fed should consider interest rate cuts soon, even as soon as July. Bowman said that she is less concerned about tariffs impact on inflation and more worried about the risks to the labor market. Interest rate cuts from the Fed, especially if earlier than expected, will likely pressure the dollar even lower.

Euro futures are lower on dollar strength. Business confidence in Germany improved this month, with the Ifo Institute’s business climate index rising to 88.4 in June from 87.5 in May, higher than the expected 88.0. This comes as private sector activity in the Euro Area largely stabilized as Germany’s economic activity returned to expansion, while France saw a further contraction per recent PMI data. Meanwhile, markets continue to expect a 25-basis-point rate cut by the European Central Bank in September, which would lower the key deposit rate to 1.75%. ECB president Lagarde said that “at the current interest-rate levels, we believe that we are in a good position to navigate the uncertain circumstances,” while Governing Council member Villeroy de Galhau said that the ECB could still cut interest rates in the next half year.

British pound futures are lower as the dollar gained over the sterling. Bank of England Deputy Governor Dave Ramsden said the UK job market is likely to continue to loosen and, as a result, help cool inflation, while echoing the idea that rates are likely to fall. Ramsden was one of the three members to vote for a rate cut last week, and he indicated that he is likely to vote for a rate cut again at the bank’s next meeting in August. The Bank of England held rates steady at its latest meeting, with the vote being more dovish than anticipated. Three of nine MPC members supported a rate cut, versus an expected 7–2 split. The BoE cited persistent inflation and geopolitical risks, warning of “two-sided risks” and expecting inflation to stay elevated through 2025.

Japanese yen futures pulled back from yesterday’s sharp rally, as the Bank of Japan’s board is divided over its rate pause and inflation risks, per its June summary. Some policymakers have called for keeping interest rates steady due to the uncertainty over the impact of US tariffs, while others said inflation was moving at higher-than-expected levels the necessitate a rate hike. The Bank of Japan will have to navigate the economic blow from US tariffs without furthering the inflation problem in the country. Manufacturing PMI in Japan for June expanded for the first time since May 2024 with a reading of 50.4, beating expectations of 49.5. Services PMI in June also grew over May’s figure with a reading of 51.5. On Thursday, Tokyo’s consumer price data is expected to show persistent inflation. Core consumer prices, excluding fresh food, are forecast to have risen 3.3% in June from a year earlier, down slightly from May’s 3.6% gain. The government is also scheduled to release employment and retail sales figures for May on Friday.

Australian dollar futures edged lower following a softer-than-anticipated inflation print. The monthly CPI indicator rose by +2.1% on an annualized basis in May, following a +2.4% rise in April, setting the stage for the Reserve Bank of Australia to cut rates at its next meeting. With core inflation now heading toward the bottom end of the RBA’s 2% to 3% inflation target range, the case for a further cut is strong. At its last meeting, the RBA cited growing global risks to its economy and seriously considered a 50 bps rate cut.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve as yields edged higher as bond markets continue to monitor the ceasefire between Israel and Iran and comments from Fed officials. Federal Reserve policymaker Michelle Bowman, who is a well-known hawk, said Monday the US central bank should consider cutting interest rates soon. Bowman, the Fed’s vice chair for supervision, said the time to cut interest rates may be fast approaching as she has grown more worried about risks to the job market and less concerned that tariffs will cause an inflation problem. Chicago Fed President Austan Goolsbee also said on Monday that thus far the surge in tariffs has had a more modest impact on the economy relative to what was expected.

Meanwhile, Fed Chair Powell told house lawmakers that the Fed is well positioned to wait on any interest rate adjustments until it sees further clarity on data on inflation and the impact from tariffs. Notably, Powell said, “If it turns out that inflation pressures do remain contained, we will get to a place where we cut rates sooner rather than later, but I wouldn’t want to point to a particular meeting.” Although he reiterated that he expects inflation to rise into the summer.

Focus this week on the economic front will be data Friday on the US core personal consumption expenditures price index for May. This is the Federal Reserve’s preferred measure of inflation and could provide insights on the trajectory for interest rates. Powell will address lawmakers in the Senate today. Investors will likely tune in for clues on the Fed’s next moves.

US regulators this week are expected to weigh one of the largest rollbacks of bank capital rules since the 2008 financial crisis, which would give a major victory to banks looking to loosen lending requirements. The Federal Reserve will consider the change on Wednesday, which would affect the so-called enhanced supplementary leverage ratio (eSLR), a rule that calls for the largest US banks to hold additional minimum capital based solely on their size. The FDIC is also expected to discuss the proposal Thursday. The change to this key capital ratio is designed to make it easier for banks to lend freely and to create an even bigger pool of buyers for US Treasurys during a period where there is rising concern over foreign demand for US debt. Treasury Secretary Scott Bessent previously signaled that regulators were close to easing this capital rule as part of a broader deregulatory push by the Trump administration.

Market participants continue to pay close attention to the tax and spending bill making its way through the Senate right now, which is set to provide some short-term stimulus but also increase the size of the US debt load over the next decade. The bill would also raise the debt ceiling by $5 trillion and add to expectations that the US Treasury Department would need to increase the size of its bond issuance in order to continue financing the government’s growing debt problem. Yields on longer-dated US Treasurys have risen as a result, as investors demand a greater return for debt they feel is less secure while the market remains sensitive to the Treasury Department’s funding strategy.

The 10-year Treasury yield is 4.31%, and the 30-year yield is 4.85%. The spread between the two- and 10-year yields rose to 50 bps from 49 bps on Tuesday.

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