Dow Jones & Nasdaq 100: Fed Cut Bets Lift US Futures

US stock futures steadied on Wednesday, February 11, after the previous day’s mixed session, as focus shifted toward the US jobs report and key earnings.

The delayed US jobs report will be the main event of the Wednesday session, with markets expecting weak labor market data. White House economic advisor Kevin Hassett recently warned that US labor market data could be weaker in the near term.

Rising bets on an H1 2026 Fed rate cut overshadowed concerns about the US economy, lifting sentiment in the Asian session. The Hang Seng Index gained 0.23%, while the ASX200 rallied 1.47%, joining US equity futures in the green.

Crucially, rising bets on an H1 2026 Fed rate cut support a medium-term outlook for US stock futures.

Below, I’ll outline the key market drivers, the medium-term outlook, and the technical levels traders should watch.

China Inflation Cools, but Producer Price Trends Improve

While market focus remains fixed on the US economic calendar, Chinese economic data drew interest early on in the Wednesday session.

China’s annual inflation rate cooled from 0.8% in December to 0.2% in January despite consumer prices rising 0.2% month-on-month (MoM) (December: 0.2% MoM). Meanwhile, producer prices fell 1.4% year-on-year (YoY) in January after declining 1.9% (YoY) in December.

Typically, softer inflation suggests waning domestic consumption as consumer confidence sinks, which would challenge Beijing’s efforts to boost spending. However, the softer headline inflation stemmed from lower energy prices and consumers holding back on spending ahead of the Lunar New Year, suggesting temporary weakness.

A positive from the January figures was the less marked decline in producer prices, suggesting an improving demand backdrop. Producers adjust prices based on demand, passing cost savings or increases on to consumers. Improving demand would signal a pickup in global trade, supporting risk assets.

US Jobs Report and Earnings in Focus

US futures posted gains during the Asian session on February 11. The Dow Jones E-mini climbed 117 points, while the Nasdaq 100 E-mini and the S&P 500 E-mini advanced 106 points and 21 points, respectively.

Later on Wednesday, US labor market data will influence expectations of an H1 2026 Fed rate cut. Economists forecast average hourly earnings will rise 3.6% year-on-year in January, down from 3.8% (YoY) in December. Meanwhile, economists expect unemployment to remain at 4.4% in January, while predicting the participation rate to drop from 62.4% to 62.3%. A lower participation rate can distort unemployment numbers.

Deteriorating labor market conditions and softer wage growth would indicate a drop in consumer spending, cooling demand-driven inflation. A weaker inflation outlook would support a more dovish Fed policy stance. Lower borrowing costs could boost corporate profits and stock valuations, supporting the bullish medium-term outlook for US stock futures.

With the US labor market in focus, traders should closely monitor Fed chatter. Views on inflation, the labor market, and monetary policy will influence risk sentiment.

Beyond the US economic data, the earnings calendar also needs consideration. McDonald’s (MCD) is among the marquee names to release earnings results. Given its retail focus, its outlook will give further clues on the demand environment. Upbeat earnings and positive outlooks would likely fuel demand for risk assets.

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

Despite the morning gains, the Nasdaq 100 E-mini remained below its 50-day EMA, while holding above its 200-day EMA. The EMA positions signaled a bearish near-term, but bullish longer-term outlook. Meanwhile, the Dow Jones E-mini and the S&P 500 E-mini traded above their 50-day and 200-day EMAs, indicating a bullish bias, aligning with positive fundamentals.

Near-term trends will hinge on geopolitical risks, earnings, US economic data, and central bank rhetoric. Key levels to monitor include:

Dow Jones

• Resistance: the February 10 record high of 50,611 and then 51,000.
• Support: the 50-day EMA (48,941), and then 48,500.

Nasdaq 100

• Resistance: the 50-day EMA (25,474), 26,000, and then the October 30 record high of 26,399.
• Support: 25,000, 24,500, and then the 200-day EMA (24,094).

S&P 500

• Resistance: the January 13 high of 7,036.
• Support: the 50-day EMA (6,913) and then the 200-day EMA (6,569).

Outlook: Fed Rate Cut Bets and Earnings Support Bullish Sentiment

In my opinion, the short-term price outlook is cautiously bullish. Meanwhile, expectations of an H1 2026 Fed rate cut and upbeat earnings reinforce the bullish medium-term outlook. These favorable fundamentals align with longer-term technicals for US index futures.

However, several scenarios would challenge the bullish medium-term outlook, including:

• Rising geopolitical tensions.
• The Bank of Japan signals a higher-than-expected neutral interest rate (potentially 1.5%-2.5%). Narrowing rate differentials could trigger a yen carry trade unwind as seen in mid-2024. Such an event would invalidate the cautiously bullish short-term outlook.
• US economic data fuels recession jitters and/or the Fed tempers bets on an H1 2026 rate cut.
• Corporate earnings and outlooks miss consensus.

Conclusion: Constructive Bias Remains Intact

In summary, expectations of multiple Fed rate cuts, strong earnings, and a cautiously hawkish BoJ reaffirm the medium-term outlook for US stock futures. Multiple Fed rate cut bets will likely hinge on the Fed lowering rates in H1 2026.

However, traders should closely monitor BoJ chatter, yen intervention warnings, and USD/JPY trends. Hawkish BoJ policy signals, a more dovish Fed policy stance, and intervention threats could send USD/JPY toward 150, exposing US equity futures to yen carry trade unwind risks.

Despite the ongoing risk of yen carry trade unwinds, US stock futures are likely to target new highs if the Fed boosts rate cut bets. Significantly, Fed rate cuts are likely to counter the effects of yen carry trade unwinds. The longer-term effect of lower borrowing costs on profitability and stock valuations is more influential on sentiment than short-term liquidity issues.

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