Retail Sales Bounce Back

STOCK INDEX FUTURES

Stock index futures are higher following a release of positive data on the US economy. Retail sales in June grew 0.6% following a steep -0.9% fall a month earlier. The reading beat estimates of a 0.1% increase. Core retail sales also grew more than expected, with a 0.5% increase in June, a turnaround from May’s -0.2%, and higher than the estimated 0.3% increase. The Philadelphia Fed manufacturing index for July came in well above expectations, with a reading of 15.9, higher than the -4.0 in June and above estimates of -1.2. Weekly jobless claims came in below expectations, with 221,000 new claims, lower than the previous week’s 228,000 and below the expected figure of 233,000. Data published yesterday showed that manufacturing output ticked up 0.1% last month after an upwardly revised 0.3% increase in May. It grew at a 2.1% annualized rate in the second quarter after expanding at a 3.7% pace in the January-March quarter.

Wall Street analysts are expecting Nvidia to rake in billions in revenue if it resumes sales of its chips to China as expected following a go-ahead from the Trump administration. Nvidia could make up as much as $15 billion in revenue from China in the second half of the year to hit around $20 billion from the region for its 2026 fiscal year, which ends next January. Nvidia said Tuesday that it had received assurances from the Trump administration that it would be granted licenses to resume sales of its H20 chips to Chinese customers. Goldman Sachs profits surged in the second quarter as the bank credited a boost in dealmaking and trading activity for the 22% jump in earnings. Investment banking fees jumped 26% due largely to advising companies on mergers, while trading revenue grew by 36%. The earnings beat echoes a similar story to JPMorgan Chase, who also beat second-quarter earnings, crediting a boost in revenue from M&A and equity underwriting.

Data from FactSet published July 3 showed analysts are coming into second-quarter earnings season expecting 5% earnings growth for the S&P 500. Should this forecast come through, it will mark the slowest pace of profit growth since the fourth quarter of 2023. Second quarter earnings include President Trump’s “Liberation Day” tariff announcement, which seeded uncertainty in the market preceding a historic rally. Looking forward, in the third quarter, analysts are expecting earnings will grow 7.3% over last year. Full-year profit growth is expected to clock in at 9%, according to FactSet data.

The University of Michigan’s July preliminary consumer survey on Friday will give a more up-to-date snapshot of consumer sentiment.

CURRENCY FUTURES

The USD index is higher, supported by strong retail sales data and weekly initial jobless claim figures that came in below expectations. Confusion over President Trump’s remarks about Fed Chairman Jerome Powell sent the dollar down yesterday. Trump indicated to Republican lawmakers that he is likely to attempt to remove Powell from his job soon but later rebuked the news, saying it was “highly unlikely” he would fire Powell. PPI inflation data showed a smaller-than-expected footprint on prices. The Labor Department reported that the producer price index, which tracks inflation before it hits consumers, was unchanged last month from May and up 2.3% from a year earlier. Both measures came in below what economists had expected.

Euro futures are lower on dollar strength. Eurozone inflation was confirmed at 2.0% per data released early this morning, as inflation has struck the European Central Bank’s target. The bank will likely cut rates only one more time before the end of the year following a cycle of easing. EU exports to the US fell for the second straight month in May after a first-quarter surge but remained higher than a year earlier. Exports to the U.S. from the European Union edged down to 46.2 billion euros, or around $53.6 billion, in May from 47.6 billion euros a month earlier, statistics agency Eurostat said Wednesday. Overall exports fell 0.8%, with the EU’s overall trade surplus rising to 13.4 billion euros. The EU extended its pause on retaliatory measures to US tariffs until early August and continues to push for negotiations.

British pound futures are little changed following fresh labor data in the country, which showed the labor market weakened further, although revised figures offered some positives. Payrolls in the UK fell for the fifth straight month, with the unemployment rate in May ticking up to 4.7%, up from 4.6% in April. Despite the data revealing a weak labor market, May payrolls were revised from -109,000 to -25,000. Wage data also showed a cooling; average weekly earnings excluding bonuses rose 5.0% from a year earlier in the three months to May, easing from 5.3% in April. Amid an uncertain economic outlook, alongside new payroll taxes and rising energy costs, businesses will likely continue to struggle to add staff. The weak figures will most likely ensure that the Bank of England will cut rates in August, as it will fuel worries among members of the bank over the health of the economy, despite the high inflation in the country. A slowdown in the labor market will also help ease inflation over the long term. The central bank anticipates wage growth to fall to around 3.75% by the end of 2025, with inflation at 3.5% in the third quarter.

Japanese yen futures are lower as a stronger dollar pressured the yen and as Japan’s exports fell for a second straight month in June, fueling fears that US tariffs will halt the nation’s economic recovery and complicate the central bank’s policy plans. Exports fell 0.5% compared with the same period a year earlier, according to the Ministry of Finance on Thursday. That was an improvement from May’s 1.7% drop but well short of a forecast for a 0.5% increase. Japan’s shipments to the U.S. slid 11.4% from a year earlier in June, highlighting the impact of higher tariffs. The reading marked a third straight month of declines after May’s 11.0% fall. Data due Friday is expected to show that inflation continues to rise. Core consumer prices, excluding fresh food, are forecast to have increased 3.4% in June from a year earlier, compared to a 3.7% rise in May. Despite stronger inflation, uncertainty over the trade picture with the US means the Bank of Japan is unlikely to rush into an interest-rate hike. On Friday, the BoJ is scheduled to conduct outright purchases in four sectors of the Japanese government bond market.

Australian dollar futures are lower as newly released labor data showed Australia’s unemployment rate unexpectedly rose to 4.3% in June, up from 4.1% in May, where it had held for nearly half a year. The data reveals a significant drop in full-time employment, as the economy only added 2,000 jobs in June while the participation rate ticked higher to 67.1%. The data comes on the heels of a decision by the Reserve Bank of Australia to hold rates steady at its latest meeting, a move that had caught markets and economists off guard. The bank said it wanted to wait for further data on inflation before cutting rates. Markets are expecting a rate cut in August from the central bank, barring any disastrous inflation data out of the country.

INTEREST RATE MARKET FUTURES

Futures are lower at the front end and higher at the long end as retail sales and jobless claims data came in better than expected. The yield curve sharply steepened yesterday after President Trump whipsawed markets following reports that he would be fired soon, before Trump denied the report. Notably, Wednesday’s reaction made clear that renewed concern over the Federal Reserve’s independence has stoked fears about US economic stability.

PPI data showed no change in June. Core prices also did not change, while annualized PPI inflation ticked down to 2.3% from 2.7%, while core inflation fell to 2.6% from 3.2% a month earlier. Final demand goods prices rose 0.3%, the largest increase since February, with the jump in sector prices attributed to core goods, which are more sensitive to tariffs. Prices for final demand services fell 0.1%, offsetting the increase in final demand goods, resulting in overall inflation being unchanged. Despite the cooler-than-expected reading, the data shows that tariff-sensitive sectors are beginning to feel price pressures, likely as a result of tariffs. The rise in final demand goods prices suggests that producers are facing higher costs on tariff-sensitive goods, which could lead to higher consumer prices in the future as businesses pass those costs along the supply chain.

CPI inflation in June rose 0.3% in June after rising 0.1% in May. Inflation ticked up to 2.7% on an annualized basis. Core CPI inflation rose 0.2% in June, below expectations of a 0.3% rise, while core prices ticked higher from 2.8% to 2.9% on an annualized basis. Shelter/housing inflation rose 0.2% and was the primary factor in the increase in inflation. Energy prices rose 0.9% as the gasoline index rose 1.0% over the month, although the energy index decreased 0.8% on an annualized basis. Food prices also contributed to the uptick, rising 0.3%. The readings reinforce comments out of the Fed that prices would increase into the summer.

Treasury Secretary Scott Bessent said that the Treasury does not plan to increase the auction sizes of the longer-dated debt at current interest rates, which could provide support for longer-term debt prices. That will leave the Treasury more dependent on short-term Treasury bill issuance to finance its operations. The Treasury is expected to ramp up net T-bill issuance in order to replenish its cash balance closer to $850 billion by the end of the quarter. More than $1 trillion in short-term T-bills are expected to hit the market over the next one and a half years following the increase of the debt ceiling. However, money market funds will remain steadfast buyers, providing ample demand for the short-term debt. Money market funds have a record $7.4 trillion in assets as of July 1 and plan to take on more supply. Estimates of new Treasury issuance over the next 18 months are between $900 billion and $1.6 trillion, higher than initial projections before the debt ceiling was raised.

Economic adviser Kevin Hassett remarked that President Trump “can fire” Fed Chair Jerome Powell “if there’s cause,” stirring fresh speculation around the central bank’s independence. Meanwhile, US Treasury Secretary Scott Bessent, in an interview on Tuesday, said that a “formal process” is already starting to identify a potential successor to Federal Reserve Chairman Jerome Powell.

The 10-year Treasury yield is 4.46%, and the 30-year yield is 5.01%. The spread between the two- and 10-year yields rose to 54 bps from 52 bps on Wednesday.

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