- Investors are looking forward to the US core PCE price index report.
- Interest futures have had a bearish week amid a rally in US Treasury yields and the dollar.
- Yields have risen this week in anticipation of more tariffs that might boost inflation.
Interest futures recovered on Friday ahead of crucial US inflation data that will shape the outlook for Fed rate cuts. However, in the previous sessions, prices collapsed as Treasury yields and the dollar recovered amid upbeat data and expectations of more US tariffs.
Investors are looking forward to the US core PCE price index report that is due later in the day. Economists believe inflation will increase by 0.3% monthly, holding from the previous release. A bigger-than-expected figure will lower Fed rate cut expectations, boosting yields and weighing on interest futures. On the other hand, if inflation is soft, rate-cut bets will increase, boosting interest futures.
Meanwhile, interest futures have had a bearish week amid a rally in US Treasury yields and the dollar. The rally came due to upbeat data at the start of the week, showing robust business activity. Notably, there was an unexpected surge in activity in the services sector, which eased fears of a recession. Moreover, data on Thursday revealed that US unemployment claims eased slightly from 225,000 to 224,000 last week.
US corporate profits (Source: Bureau of Economic Analysis)
Meanwhile, US company profits soared in the last quarter, boosting the overall GDP. The US economy expanded by 2.4% in Q4. Meanwhile, forecasts had shown a 2.3% growth. The upbeat report further calmed fears of a rapid decline in the economy. At the same time, it eased pressure on the Federal Reserve to lower borrowing costs.
However, market participants are also watching Trump’s policy developments. Yields have risen this week in anticipation of more tariffs that might boost inflation. The US president on Wednesday confirmed that the US will start imposing an automobile tariff next week. Trump might also impose a 25% tariff on imports from Canada and Mexico.
Additionally, markets expect a reciprocal tariff that will affect many more countries. These tariffs will increase the cost of goods, driving inflation higher. This might cause the Fed to remain cautious. Some policymakers have even indicated a willingness to hike rates.
However, these tariffs will also escalate the global trade war and weaken major economies. Experts have warned of a likely US recession that would sink equities and bonds alike. Such an outcome would send most to traditional safe-haven assets like gold and the yen.
