Dow Jones & Nasdaq 100: BoJ’s Hawkish Shift Affects US Futures

U.S. economic data and Fed focus

During Asian trading on Monday, December 29th, prices showed a mixed trend. The Nasdaq 100 E-mini and S&P 500 E-mini dropped by 16 points and 3 points, respectively, while the Dow Jones E-mini gained 9 points.

The Dallas Fed Manufacturing Business Index is expected to impact market sentiment later on Monday, with economists predicting it will rise to -2.5 for December, up from -10.4 in November. If these numbers surpass expectations, it could indicate stronger manufacturing activity and a more resilient U.S. economy as the fourth quarter wraps up, which would likely boost risk appetite.

Nonetheless, this report probably won’t sway market expectations regarding the Federal Reserve’s interest rate cut in March. Traders are advised to pay close attention to speeches from FOMC members after last week’s reports on GDP, CPI, and job growth. The trend of slowing inflation and a weak labor market has led to heightened speculation about a rate cut in March. However, the third-quarter GDP figures indicated stagnant inflation, which leaves Fed policy shrouded in uncertainty.

If there’s stronger support for additional rate cuts, demand for U.S. stock futures could increase, fostering a positive outlook in the near to medium term. It’s essential to note that gradual rate cuts, along with a careful increase in the Bank of Japan’s policy rate, may allow yen carry trades to generate sufficient profits for the time being, reducing the risk of market turmoil.

According to the CME FedWatch Tool, the likelihood of a Fed rate cut in March rose from 53.3% on December 26th to 54.8% by December 29th. The Fed chair seems to favor lower interest rates, endorsing a more dovish approach to interest rates overall.

Current market dynamics, combined with a surge in AI investments, are heightening investor interest in U.S. stock futures. The Nasdaq 100 E-mini and S&P 500 E-mini aim for a seven-day winning streak, while the Dow Jones E-mini hovers near all-time highs, gaining bullish momentum.