Dow Jones & Nasdaq 100 Extend Gains on Carry-Trade Flows in Asia

US stock futures advanced during the Asian session on Monday, November 24, building on Friday’s rally. A shift in sentiment toward the Fed’s December interest rate decision lifted demand for risk assets.

Meanwhile, the Japanese yen came under selling pressure return in the morning session, fueling carry trades into US equity futures and Asian equity markets. Adverse market reaction to the Japanese government’s fiscal stimulus package, amid concerns over fiscal sustainability, sent USD/JPY to a morning high of 156.801. Typically, traders take advantage of a weaker yen, coupled with low borrowing costs, to invest in risk assets.

USD/JPY Resumes Move toward 160 Despite Fed Rate Cut Bets

USD/JPY advanced 0.21% to 156.661 during the Asian session on Monday, November 24. Yen weakness, stemming from Japan’s fiscal stimulus package and fiscal sustainability concerns, overshadowed rising bets on a December Fed rate cut.

Notably, the USD/JPY pair has soared 6% in the fourth quarter, underscoring market sentiment toward Prime Minister Sanae Takaichi’s pro-ultra-loose monetary policy stance and expectations of a stimulus package aimed at cooling pressures on households. Japanese Government Bond (JGB) yields advanced while the yen weakened, reflecting concerns about fiscal sustainability and falling confidence in the yen.

James E. Thorne, Chief Market Strategist at Wellington Altus, previously commented on Prime Minister Takaichi’s policy goals and yen weakness, stating:

“Sanae Takaichi, the “Iron Lady of Japan,” has revived Abenomics-style stimulus that will expand global liquidity through fiscal easing and ultra-loose credit. Her policies strengthen the yen carry trade and the U.S. dollar, gold’s pullback should not be a surprise.”

Furthermore, the yen weakened despite rising expectations for a December Fed rate cut. According to the CME FedWatch Tool, the probability of a December cut rose from 35.6% on November 20 to 71% on November 21, lifted by dovish Fed rhetoric.

US Stock Futures: CFNAI and Fed in Focus

Futures posted gains during the Asian session. The Dow Jones E-mini climbed 77 points, the Nasdaq 100 E-mini gained 132 points, while the S&P 500 E-mini rose 27 points.

Later on Monday, the Chicago Fed National Activity Index (CFNAI) will provide insights into the US economy midway through the fourth quarter. Economists expect the CFNAI to increase from -5.0 in October to -1.0 in November. Economists view the CFNAI as a leading economic indicator, as the index considers employment, personal income, production, and sales across services and manufacturing.

A higher-than-expected reading could signal a pickup in economic momentum, potentially easing risks of stagflation. Waning concerns about stagflation could boost demand for US index futures.

Beyond the data, traders should monitor FOMC members’ speeches after NY President John Williams opened the door to a year-end rate cut on Friday, November 21. Growing support for a December rate cut could deliver another day of gains for US equity futures.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

Despite the morning gains, US stock futures remained below their 50-day EMA, indicating a bearish near-term bias. Breaks above or below EMAs signal shifts in momentum.

Near-term trends will hinge on US data and Fed speakers. Key levels to monitor include:

Dow Jones

• Resistance: 50-day EMA (46,657), 47,000, 47,500, and the November 12 record high of 48,528.
• Support: 46,000, and then 45,500.

Nasdaq 100

• Resistance: 24,500, the 50-day EMA (24,892), 26,000, then the October 30 record high of 26,399.
• Support: 24,000, and then 23,500.

S&P 500

• Resistance: the 50-day EMA (6,702), the October 30 record high of 6,954, and then 7,000.
• Support: 6,500, and then 6,250.

Market Outlook: CFNAI and Fed to Set the Tone

Traders may face a choppy start to the week as US data and Fed speakers take the spotlight. Second-tier reports will have greater influence on risk appetite, given the cancellation of October’s inflation and jobs data.

Meanwhile, Fed chatter will also drive sentiment amid renewed hopes for an end-of-year Fed rate cut. However, traders should closely monitor Japanese government warnings of a yen intervention. A USD/JPY move toward 150 could lead to a carry trade unwind on yen strength, potentially weighing on US stock futures.

Follow our live coverage and consult the economic calendar for real-time market updates.