FIIJ Core Forecast

2026-02-03 MEDIUM

Situation

The US economy presents a mixed but stabilizing picture with GDP growth at 2.0% monthly and unemployment declining to 4.4%, suggesting resilient fundamentals despite elevated inflation at 326.03 CPI. The Federal Reserve's recent 22bp rate cut to 3.64% indicates a pivot toward accommodation, though the 10-year Treasury's rise to 4.21% suggests bond markets are pricing in persistent inflation expectations or growth optimism. Consumer sentiment's 3.7% improvement to 52.9 signals nascent confidence recovery, though levels remain historically depressed. Market dynamics reveal sector rotation with AI proxies showing divergence (AMD +4.03%, NVIDIA -2.89%) while commodities display mixed signals - copper's 3.71% gain suggests industrial demand strength, contrasting with lithium's -3.34% decline potentially reflecting EV demand normalization. The normal yield curve (67bp spread) and stable forex markets (EUR/USD at 1.18) indicate reduced financial stress, creating conditions for selective risk-taking in the 30-day horizon. ---

Opportunities

**Primary**: Treasury 2Y-10Y Curve: Long 10Y/Short 2Y steepener trade (65%)
**Primary**: Lithium Futures: Contrarian long position with tight stops (65%)
**Primary**: Consumer Discretionary Equities: Selective long positions in quality names (65%)
**Secondary**: Federal Reserve Policy Trajectory: Continued accommodation with 22bp cut signals dovish pivot, supporting equity valuations and credit markets while potentially weakening USD. Bond yields may remain elevated on growth/inflation expectations. (70%)
**Secondary**: Labor Market Resilience: 4.4% unemployment with -2.2% monthly decline supports consumer spending power and economic momentum. Tight labor markets may sustain wage pressures and inflation expectations. (55%)
**Secondary**: Industrial Commodity Demand: Copper strength (+3.71%) indicates manufacturing/infrastructure demand resilience. Supports cyclical sectors and emerging market currencies tied to commodity exports. (55%)
---