Investors will keep an eye on the new inflation data releases from major economies to gauge the central banks’ potential policy shifts.

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The Nasdaq has broken down from an eight-month rising channel. Nvidia’s recent earnings temporarily rallied it back to the resistance, but the attempt was abruptly rejected.

The Nikkei 225 has been consolidating in a bull flag following its breakout from a two-year resistance. It is coming near a significant support level, where a rebound appears on the cards.

The U.S. 10-year yield soared higher since April, surpassing its previous peak in November 2022. Could this spell further trouble for the bond bulls?

Copper’s recent move presents a similar pattern from the 2009-2013 era. After an initial post-crisis surge, it is settling into consolidation before seemingly continuing its downward trend.

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“Navigating by the stars under cloudy skies,” remarked Federal Reserve Chairman Powell at this year’s Jackson Hole symposium. This is a sentiment that, in our view, perfectly encapsulates the stance of many major central banks, amid the whirlpool of cross-currents clouding the macroeconomic panorama.

The market is still chewing over Powell’s remarks, reminiscent of the cautionary tones he struck at Jackson Hole the previous year. Back then, he emphasized that enduring “some pain” was almost a rite of passage to usher inflation back to the Fed’s two percent target. What is the difference this time around? While inflation was previously described as “running away,” recent months have seen a deceleration in core inflation readings. These might be heartening signs for the Fed, but they’re not yet compelling enough for the Fed to hit the brakes or introduce rate cuts. The lingering fear? Reigniting and entrenching that very inflation they wish to control. Moreover, Powell conceded to a more nuanced landscape this year, noting the two-sided risks and hinting that overstepping could equally dent the economy.

The U.S. economic data of late doesn’t make the task any simpler. Most data is lagging, which only thickens the fog for the Fed and the market, leaving everyone puzzled over the Goldilocks measure of “just right.” Our take on the matter? Don’t expect the Fed to hand out a preset roadmap. Instead, get ready for a more adaptive and flexible approach as they steer towards their dual mandate of maximum employment and price stability. A word of caution to our readers, once again: the Fed’s mandate doesn’t include bolstering the stock market. And with the latest AI-fueled market exuberance, there’s a palpable sense of vulnerability, teetering on the precipice of a sharp correction.

But where does one scout for brighter prospects? Our attention returns to Japan. As we highlighted previously, the Bank of Japan has displayed commendable finesse in one of the most pivotal monetary policy experiments to date. The relative calm they’ve maintained amidst policy recalibration speaks volumes. In contrast to U.S. equities, Japanese stocks present a compelling case both from valuation and technical standpoints, especially in these turbulent waters. And if you’re looking for a nod of agreement, the latest portfolio disclosures of Berkshire Hathaway serve one, as endorsed by Warren Buffett’s recent bullish stance on Japan. The less cloudy skies seem to be over the Land of the Rising Sun.

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We consider expressing our views via the following hypothetical trades¹:

Case study 1: short E-mini Nasdaq-100 futures

We would consider taking a short position on the E-mini Nasdaq-100 futures (NQU3) at the present level of 15,000, with a stop-loss above 15,450, which brings us a hypothetical maximum loss of 15,450 – 15,000 = 450 points. As shown in Figure 1, if the breakout to the downside is confirmed, the index has the potential to fall to 13,450, a hypothetical gain of 15,000 – 13,450 = 1,550 points. Each point move in the E-mini Nasdaq-100 futures contract is USD 20.

We can also express the same view by taking a short position on the Micro E-mini Nasdaq-100 futures (MNQU3) , a smaller-sized contract with the same stop loss. Each point move in the Micro E-mini Nasdaq-100 futures contract is USD 2.

Case study 2: long Nikkei 225 (USD) futures

We would consider taking a long position on the Nikkei 225 (USD) futures (NKDU3) at the present level of 31,900, with a stop-loss below 31,000, which brings us a hypothetical maximum loss of 31,900 – 31,000 = 900 points. As shown in Figure 2, if the index rebounds here and continues to break out from the bull flag, it has the potential to reach 34,000, a hypothetical gain of 34,000 – 31,900 = 2,100 points. Each point move in the Nikkei 225 (USD) futures contract is USD 5.

¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Inspirante Trading Solutions Pte Ltd (“ITS”). CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.

CME GROUP DOES NOT REPRESENT THAT ANY MATERIAL OR INFORMATION CONTAINED HEREIN IS APPROPRIATE FOR USE OR PERMITTED IN ANY JURISDICTION OR COUNTRY WHERE SUCH USE OR DISTRIBUTION WOULD BE CONTRARY TO ANY APPLICABLE LAW OR REGULATION.

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