Dow Jones & Nasdaq 100 Gain on Yen Weakness, Fed Risks Persist

Traders brace for a pivotal week ahead for US stock futures amid rising volatility risks. Futures advanced in the Asian session on Monday, November 17, after a more hawkish Fed rate path triggered market volatility in the previous week.

Ahead of key US events, reports of Japanese Prime Minister Sanae Takaichi planning a 17 trillion yen stimulus package and Japanese GDP data lifted USD/JPY, boosting carry trade flows. However, last week’s sharp fall in bets on a December Fed rate cut capped the morning gains.

It’s a pivotal week for US equity futures, with Nvidia earnings, delayed US economic reports, and Fed speakers under the spotlight.

Japanese Economy Contracts, Challenging BoJ Rate Hike Bets

Amid fading expectations of a December Fed rate cut, Japanese GDP figures could further delay a Bank of Japan rate hike. The Japanese economy contracted 0.4% quarter-on-quarter (QoQ) in the third quarter after expanding 0.6% in the second quarter.

The third-quarter economic contraction, fading bets on a BoJ rate hike, and a weaker Japanese yen may fuel carry trades, boosting demand for US stock futures. Notably, USD/JPY rose 0.08% to 154.646 in morning trading, hovering near last week’s nine-month high of 155.044.

Furthermore, the third-quarter contraction supported Prime Minister Takaichi’s fiscal stimulus plans and ultra-loose monetary policy stance, headwinds for the yen.

US Stock Futures: Economic Data and the Fed in Focus

Futures steadied during the Asian session after last week’s heightened volatility. The Dow Jones E-mini rose 12 points, the Nasdaq 100 E-mini gained 146 points, while the S&P 500 E-mini climbed 22 points.

Later on Monday, US economic data and Fed speakers will take center stage. Traders should closely monitor Fed speeches that could further sink bets on a December rate cut. US stock futures may come under intense selling pressure if Fed speakers close the door on further monetary policy easing.

Economists expect the NY Empire State Manufacturing Index to fall from 10.7 in October to 6.1 in November. A sharper loss of sector momentum amid an elevated inflation backdrop may fuel stagflation concerns, weighing on risk assets.

However, Fed speakers will likely have a greater influence on sentiment. NY Fed President John Williams and voting FOMC member Philip Jefferson are due to speak. Calls to delay rate cuts to tame inflationary pressures could weigh on US stock futures. Rising prices and slowing economic momentum would signal stagflation, a headwind for risk assets.

Fed speakers dampened bets on a December rate cut last week, citing concerns over inflation being too hot. According to the CME FedWatch Tool, the probability of a December cut fell from 66.9% on Friday, November 7, to 44.4% on Friday, November 14.

Looking ahead, traders should monitor stagflation risks as the primary driver for futures. Furthermore, traders must also watch for any sharp yen appreciation that could amplify volatility through carry trade unwinding.

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

Despite last week’s volatility, US stock futures traded above their key technical levels, signaling a bullish bias. Near-term trends will hinge on incoming US data, Fed chatter, and earnings. Key levels to monitor include:

Dow Jones

• Resistance: 47,500, 48,000, and the November 12 record high of 48,528.
• Support: 47,000, and the 50-day EMA (46,783).

Nasdaq 100

• Resistance: 25,500, 26,000, then October 30 record high of 26,399.
• Support: the 50-day EMA (25,008), then 24,750.

S&P 500

• Resistance: October 30 record high of 6,954, then 7,000.
• Support: the 50-day EMA (6,723) and 6,500.

Market Outlook: US Data and Earnings in Focus

US economic data and Fed speakers could intensify market volatility as central bankers and markets react to delayed US economic reports. The US government shutdown left markets and the Fed without crucial inflation and labor market data for an extended period.

Meanwhile, Nvidia will release its earnings, another key event given recent concerns about lofty valuations for AI stocks.

Given these competing market forces, US stock futures are in for a choppy start to the week.

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