The US stock futures advanced in the early Asian market session on February 3, consolidating the gains of the previous day. Concerns about the AI-related spending and returns on investment have eased with the settlement of Microsoft’s (MSFT) earnings results. The US economic data from February 2 signaled a pickup in the manufacturing sector activity in January, thereby lifting the sentiment. Furthermore, the partial shutdown of the US government ends today; hence, the trade deal between the US and India could contribute to an uptick in sentiment.
Current Market Dynamics
The USD/JPY holding onto the 155 level after Monday’s gains added to a positive sentiment, and the Nikkei 225 surged to 2.94% in morning trading, thereby joining the US equity futures in the positive territory. Monday’s rally, along with the morning gains, is reflecting an optimistic multiple Fed rate cuts in 2026. The settlement and the economic outlook are supporting a cautious bullish outlook for the US index futures.
Easing the trade tension will boost demand for risk assets, announced President Donald Trump, and stated that the trade agreement between India and the US would allow the US to charge a reduced reciprocal tariff, lowering it to 18% from 25%. Thereby lowering the tariffs and non-tariff barriers against the United States to zero. He also added that the Prime Minister of India, Narendra Modi, is also committed to ‘BUY AMERICAN’ at a much higher level, in addition to over $500 billion of US energy, technology, agricultural, coal, and many other products.
The recovery on Monday and the morning gains left the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini trading above their 50-day and 200-day EMAs. The EMA positions signaled a bullish momentum, aligning with the positive fundamentals. However, the near-term will depend on the geopolitical risks, earnings, US economic data, central bank chatter, and the US House vote. Additionally, Sensex and Nifty 50 surged over 5% following a major trade deal with the US.
What to Expect in the Future
This short-term price outlook remains cautiously bullish. Additionally, the bets on the H1 2026 Fed rate cut and the upbeat sentiment toward Q4 earnings support the bullish medium-term outlook. However, this bullish medium-term outlook can be challenged by factors like increased geopolitical risks, and also, as the Bank of Japan is indicating a higher-than-expected neutral interest rate, a narrower-than-expected US-Japan rate differential can trigger a yen carry trade unwind; such a scenario could invalidate the short-term outlook.
However, the strong economy, a dovish Fed rate path with robust earnings, and a cautiously hawkish BoJ can reaffirm the short-and medium- term outlooks of the US stock futures. Additionally, traders need to monitor BoJ chatter, warnings of yen intervention, and USD/JPY trends to make maximum utilization. Despite the risks of a yen carry trade unwind, new all-time highs for the US stock futures are likely, if the economic data fuel bets on a June Fed rate cut.
