Dow Jones & Nasdaq 100: Inflation Focus Steadies US Futures in Asia

US inflation and the Michigan Consumer Survey set the stage for the Fed’s interest rate decision. US stock futures advanced in the Asian morning session on Friday, December 5, as markets shifted their focus to the US economic calendar.

September’s delayed US Personal Income and Outlays Report and inflation expectation trends from the University of Michigan will influence bets on Fed rate cuts.

Meanwhile, Japanese household spending numbers raised some uncertainty about the Bank of Japan’s policy outlook.

In my opinion, the Japanese data eased concerns about a hawkish BoJ rate hike. At the same time, softer US services-sector price inflation bolstered bets on a December Fed rate cut, supporting a bullish short- to medium-term outlook for US stock futures.

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

Japanese Household Spending Tumbles

Japanese household spending plunged 3.5% month-on-month in October, following a 0.7% decline in September. Economists expected household spending to rise by 0.7%.

The unexpected drop in spending raised uncertainty about the BoJ rate path beyond December. Private consumption accounts for roughly 55% of Japan’s GDP, suggesting a further loss of economic momentum early in the fourth quarter. Japan’s economy contracted by 0.4% quarter-on-quarter in Q3.

USD/JPY held steady in morning trading, edging 0.01% higher to 155.066 despite the weaker data. Meanwhile, 10-year Japanese Government Bond (JGB) yields eased back after climbing to their highest level since Q3 2007 on Thursday, December 4.

Weaker Japanese data and steady USD/JPY and JGB 10-year yields boosted demand for US equity futures. JGB yields have become a market focal point following Monday’s surge in 10-year yields. Rising JGB yields fueled fears of a yen carry trade unwind, which dragged risk assets sharply lower.

US Inflation in Focus

Futures advanced during the Asian morning session. The Dow Jones E-mini rose 40 points, the Nasdaq 100 E-mini advanced 73 points, while the S&P 500 E-mini gained 11 points.

Hopes for a December Fed rate cut, rising bets on a March cut, and easing concerns about a hawkish BoJ rate hike sent US stock futures higher.

However, key US economic indicators will influence risk appetite later on Friday, December 5, with inflation in the spotlight. Economists forecast the US Core PCE Price Index to rise by 0.2% month-on-month and by 2.9% year-on-year in September, matching August’s trends. Meanwhile, economists expect the Michigan Inflation Expectations Index to slip from 4.5% in November to 4.4% in December.

Michigan Inflation Expectations may have a greater influence on risk appetite than the Core PCE Price Index, given that the Core PCE Index numbers are outdated. Softer inflation would boost bets on December and March Fed rate cuts and lift sentiment.

The short- to medium-term outlook remains bullish for US equity futures as recent US data showed a resilient US economy, easing stagflation jitters.

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

The Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini continued to trade above their 50-day and 200-day EMAs, indicating a bullish bias.

Near-term trends will hinge on BoJ rhetoric, JGB yields, USD/JPY movements, and US data. Key levels to monitor include:

Dow Jones

• Resistance: 48,000 and then the November 12 record high of 48,528.
• Support: 47,500, the 50-day EMA (46,936), 46,000, and then the November 21 low of 45,779.

Nasdaq 100

• Resistance: 25,750, 26,000, and then the October 30 record high of 26,399.
• Support: 25,500, the 50-day EMA (25,072), 24,500, and then 24,000.

S&P 500

• Resistance: the October 30 record high of 6,954, and then 7,000.
• Support: the 50-day EMA (6,743), 6,500, and then 6,250.

US Inflation to Dictate Short-Term and Medium-Term Outlook

In my opinion, the short-term outlook remains bullish despite Thursday’s mixed session. However, US inflation figures will be key for US index futures. Softer inflation would likely boost demand for risk assets, bringing all-time highs into play.

However, several factors could challenge the bullish short- and medium-term outlooks, including:

• Bank of Japan signals a higher-than-expected neutral rate.
• Strong US jobs data.
• Hotter US inflation.
• Fed raises concerns about inflation.

Conclusion: Outlook Bullish

In summary, bets on a Fed rate cut are likely to bolster demand for US stock futures. However, traders should continue watching JGB yields, USD/JPY trends, and the Nikkei 225 for early signals of a yen carry trade unwind.

Yields pulled back but remain elevated, keeping unwind risk alive ahead of the influential US data.

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