Dow Jones & Nasdaq 100: US Futures Rise on Fed Cut, BoJ Hawk Risks

US stock futures advanced early in the Asian session on Friday, November 28. The bulls were eying a five-day winning streak amid expectations of a December Fed rate cut.

However, Japanese economic indicators fueled speculation about a December Bank of Japan rate hike, capping the morning gains. A BoJ rate hike coinciding with a Fed rate cut could send USD/JPY sharply lower, raising the risk of a yen carry trade unwind. Notably, the Nikkei 225 fell 0.04% in early trading, as bets on a BoJ rate hike overshadowed expectations for a Fed rate cut.

Japanese Inflation and Retail Sales Spotlight the BoJ

Tokyo’s so-called ‘core-core’ annual inflation rate held at 2.8% in November, remaining well above the BoJ’s 2% target. Sticky inflation could support a 25-basis-point BoJ rate hike in December, potentially narrowing the US-Japan rate differential in favor of the yen.

Meanwhile, Japanese retail sales jumped 1.6% month-on-month in October after stalling in September, signaling a pickup in economic momentum. For context, private consumption accounts for around 55% of Japan’s GDP. Moreover, a pickup in consumer spending may fuel demand-driven inflation, supporting a more hawkish BoJ rate path.

A stronger yen could trigger a carry trade unwind and weigh on US equity futures. In July 2024, the BoJ cut purchases of Japanese Government Bonds (JGBs) and raised short-term interest rates to 0.5%. USD/JPY plunged from 153.889 to 141.684 in the fallout from the BoJ policy decision. The Nasdaq 100 E-mini Futures slid from 19,648 on July 31, 2024, to an August 5 low of 17,351. Markets could turn cautious if speculation about a BoJ rate hike intensifies.

Fed Rate Cut Bets Rise as US Jobs Data Signals Cooling

The chances of a December Fed rate cut have soared in recent sessions, kick-starting a recovery across US stock futures. According to the CME FedWatch Tool, the probability of a 25-basis-point December Fed rate cut increased from 39.1% on November 20 to 84.7% on November 28.

Notably, the absence of US CPI data has left jobs data to influence the Fed’s rate path. The Kobeissi Letter commented on recent jobs data, stating:

“Job cuts tracked by MacroEdge jumped 70,609 MoM in October to 154,559, the highest in at least 2 years. Monthly job cuts have now exceeded 100,000 for the 5th time this year. At the same time, layoff announcements compiled by Challenger Gray spiked 99,010 to 153,074, the highest since March. This also marks the highest monthly number for any October in 22 years.”

As US layoffs signal a deteriorating labor market, shifting sentiment toward the Fed’s policy stance remains key in the near term.

US Stock Futures: Fed Speakers in Focus

Futures extended their gains from Wednesday, November 26, during the Asian session. The Dow Jones E-mini climbed 52 points, the Nasdaq 100 E-mini rose 47 points, while the S&P 500 E-mini advanced 7 points.

Later on Friday, traders should closely monitor FOMC members’ speeches for views on the labor market, inflation, and monetary policy. Growing calls for a December cut could push US equity futures higher in a shortened US trading session. There are no US economic reports for traders to consider today.

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

Following the recent rebound, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini remained above their 50-day and 200-day EMAs, signaling bullish momentum.

Near-term trends will hinge on Fed speeches and USD/JPY price trends. Key levels to monitor include:

Dow Jones

• Resistance: 47,750, 48,000, and the November 12 record high of 48,528.
• Support: 47,500, 47,000, the 50-day EMA (46,746), 46,000, and then the November 21 low of 45,779.

Nasdaq 100

• Resistance: 25,500, 26,000, and then the October 30 record high of 26,399.
• Support: the 50-day EMA (24,950), 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 (6,718), 6,500, and then 6,250.

Market Outlook: BoJ and the Fed in the Spotlight

Traders should brace for potential market volatility in the coming sessions. Rising bets on a BoJ rate hike and a Fed rate cut could send USD/JPY sharply lower, raising the risk of a yen carry trade unwind.

Bank of Japan and Fed monetary policy forward guidance will be key in the Friday session in the absence of fresh US data.

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