Markets Eye Waller for Fed Chair

STOCK INDEX FUTURES

Stock index futures are higher as Wall Street reviews President Trump’s nomination of Stephen Miran to the Fed Board of Governors. There is no data on the calendar for Friday, so markets will focus on earnings and any developments out of the White House.

Stocks ended Thursday with mixed performance as investors weighed the tariffs that went into effect a minute past midnight on Thursday. Markets pared earlier losses after Trump announced his nomination of Stephen Miran, current Chair of the Council of Economic Advisors, to the Fed Board. US Jobless claims ticked higher to 226,000 new claims for the week ending August 2, while the previous figure was revised up from 218,000 to 219,000. Productivity figures rebounded in the second quarter, growing 2.4%, well above the first quarter’s -1.8% drop.

President Trump said he will exempt companies from his planned semiconductor tariffs if they have committed to making their chips in the US. Trump announced on Wednesday that there will be a 100% tariff on chips and semiconductors. A White House official confirmed that Apple’s semiconductor-powered devices, which include its iPhone, will be unaffected by Trump’s 25% “reciprocal” tariffs set to go into effect Thursday. The same goes for an upcoming promise of an additional 25% levy related to India’s use of Russian oil that is set to be in place in about 3 weeks’ time.

CURRENCY FUTURES

The USD index is lower as President Trump’s pick to fill Kugler’s spot on the Fed Board stoked dovish expectations for Chair Jerome Powell’s spot when his term ends. The dollar rose on Thursday after Bloomberg reported Fed Governor Christopher Waller is emerging as a top candidate to serve as the central bank’s chair. Waller is deeply respected in financial markets and central banking circles, and his appointment would be positive for faith in the central bank. Trump also announced that Stephen Miran will fill Kugler’s spot on the board until January 31, 2026, when the term ends. Investor focus will now switch to next week’s US consumer price inflation data.

Euro futures are higher. Newly published data showed that Germany’s goods exports to the US slid in June, while industrial production also unexpectedly took a strong hit. Exports from Europe’s largest economy to the US slid 2.1%, the third consecutive monthly decrease and the lowest value since February 2022. Imports from the US increased, narrowing the trade surplus with the US. Industrial production weakened a more-than-expected 1.9% in June, with output in the second quarter of the year dropping to the lowest level since the first half of 2020. Downward revisions to previous months’ data showed that production took a hit from tariffs, just as data published on Wednesday showed that German manufacturing orders also declined in June. The hit to these sectors is attributed to the impact of US tariff policy, although they could see some relief from the reduction in US tariffs on cars, agreed to in the EU-US trade deal.

British pound futures are higher, gaining support from signals that the Bank of England will not cut rates again soon. The BoE cut interest rates by 25 bps to 4.00%; while five of the nine MPC members backed a 25 bps cut, four voted for no change. The strength of the opposition to Thursday’s cut suggests the pace of easing may slow, with policymakers becoming much more concerned about the pace of food inflation. Governor Andrew Bailey called it a “finely balanced” decision and reiterated that future cuts will be “gradual and careful.” The split in voting highlights the differing opinions on rising inflation in the country, which is expected to hit 4% in September, as signs of labor market strain continue to appear in the economy. Purchasing Managers’ Index data for July showed British businesses were raising prices at a “robust pace,” while the Halifax House Price Index rose 0.4% in July, more than the expected 0.1%. Growth forecasts for 2025 were nudged up to 1.25%. Markets expect one more cut this year.

Japanese yen futures are lower as new data shows that household spending fell sharply in June, falling -5.2% in June from May. This comes as real wages in Japan fell for the sixth straight month in June, with inflation continuing to outpace pay growth. This has complicated the Bank of Japan’s path toward hiking rates; however, as the tariff impact on the economy becomes clearer, the bank will likely move to cut rates. Minutes of its June policy meeting showed a few Bank of Japan board members said the central bank would consider resuming interest rate increases if trade frictions de-escalate. The US announced that it would “add” a 15% tariff on all Japanese imports, not the 15% tariff rate Japan had believed the US would impose on Japanese cars and many other imports. Japan’s top trade negotiator is in Washington looking for clarification on the trade deal.

Australian dollar futures are higher as the AUD is on pace for a solid weekly gain. Building approvals in the country rebounded 11.9% in June from May, which posted only a 3.2% growth. Trade balance figures also showed a 6.0% uptick in exports in June, a reversal from May’s -3.0% decline. Imports fell -3.1% from May, increasing the country’s trade balance in June to 5.365 billion from 1.604 billion in May. New data on inflation expectations also showed that expectations remain anchored at 2.3%, another positive sign for the Reserve Bank of Australia to cut rates at its meeting next week. Markets are already fully priced in for a quarter-point rate cut to 3.60% from the RBA.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve. Yesterday’s 30-year bond auction saw weak demand, following a string of auctions earlier in the week, which saw similar results. The results of the $25 billion 30-year bond sale showed sloppy bidding and only average non-dealer demand. The bid-to-cover ratio at 2.27 fell below the six-auction average of 2.36. Indirect bids at 59.5% were below the 64.2% average. Direct bids at 23.0% beat the 18.5% average and left dealers with an average take of 17.5%, the highest dealer take in a year.

Yields ticked higher on Thursday, following the soft auction, but found some support after Bloomberg reported that Governor Christopher Waller is emerging as a top candidate to serve as the central bank’s chair. Waller is seen as a dove, but has strong credibility in financial markets and could keep long-term yields anchored and flows into the USD well supported. President Trump also announced that Stephen Miran would fill Kugler’s vacant spot on the board until the term ends in late January of 2026. Miran will also be a dovish factor on the board.

Weaker labor data will continue to pressure the Fed into lowering rates further; the Fed will have an August labor report in its inventory ahead of its meeting in September. If data from the August jobs report continues to paint a picture of a grim labor market, a 50 bp cut from the Fed would not be off the table. However, many states have reported they have been behind in claims processing in recent months as outdated technology issues, decreased staff, funding issues, and backlogs of appeal delays have potentially impacted survey results. Future jobs reports and revisions will continue to garner attention for those reasons and could add to speculation regarding the integrity and accuracy of the data. President Trump fired a top Labor Department official on Friday, while the departure of Fed Governor Adriana Kugler offered Trump the chance to reshape the Fed.

The spread between the two- and 10-year yields is 51.3 bps, little changed from 51.2 on Thursday.

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