Bullish Medium-Term Outlook: Jobs Data and Fed Chatter Key
In my opinion, the short-term price outlook remains cautiously bullish, considering expectations of a Fed rate cut, alongside technicals. Furthermore, markets anticipate the incoming Fed Chair to favor low interest rates, reinforcing the constructive medium-term bias.
However, several events would likely unravel the bullish medium-term outlook, including:
- The Bank of Japan announces a neutral interest rate of between 1.5 and 2.5%, signaling narrower US-Japan rate differentials.
- Strong US data and hawkish Fed rhetoric lower bets on a Fed rate cut.
Conclusion: Outlook Bullish
In summary, a robust US economy, expectations of Fed rate cuts, AI-related developments, and a less hawkish BoJ rate path support a cautiously bullish short-term and bullish medium-term outlook for US stock futures.
Nevertheless, traders should closely monitor 10-year JGB yield, USD/JPY, and Nikkei 225 trends, following December’s BoJ Summary of Opinions.
Yen intervention threats and hawkish BoJ rhetoric would likely drive JGB yields higher. Rising yields would send USD/JPY lower, potentially weighing on risk appetite.
Key levels to watch include a USD/JPY drop below 150 and 10-year JGB yields advancing to the December 22 high of 2.1%. These levels would likely send the Nikkei 225 lower, weighing on demand for US risk assets.
Despite looming BoJ hikes, US stock futures are likely to target new highs, with the Fed’s policy outlook and earnings key drivers.
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