Dow Jones & Nasdaq 100 Could Give Up Gains Despite Upbeat China PMI Data

Key Asian Market Movers: Hang Seng Index Rallies on China Data

Crucial economic data from China lifted sentiment, easing concerns that US tariffs would trigger an economic slowdown. The RatingDog China General Manufacturing PMI unexpectedly rose from 49.5 in July to 50.5 in August. Economists had expected the PMI to remain unchanged at 49.5.

Rising new orders and a slower fall in external demand drove manufacturing sector output, lifting the PMI above the crucial neutral 50 level. The Hang Seng Index rallied 2.16% to 25,619 in morning trading on Monday, September 1, as traders reacted to the data. Mainland China’s equity markets also got a lift, with the CSI 300 and Shanghai Composite Index up 0.30% and 0.46%, respectively.

Meanwhile, uncertainties about trade tariffs and market caution ahead of the highly anticipated US Jobs Report (September 5) weighed on the broader Asian equity markets.

On Friday, August 29, the US Court of Appeals ruled that President Trump’s tariffs were illegal. The ruling came shortly after the US markets closed and ahead of the Labor Day weekend. However, the Court of Appeals allowed the US administration to maintain tariffs pending a potential appeal to the Supreme Court.

President Trump dismissed the ruling, calling it incorrect. Trump also warned that the removal of tariffs would be ‘a total disaster for the Country. It would make us financially weak, and we have to be strong.’ The Supreme Court could rule the tariffs legal, reinforcing President Trump’s authority to impose them at will if it overturns the Court of Appeals ruling.

The Nikkei 225 slid 2.03% in the morning session, while the ASX 200 dropped 0.58%.

Why Does the US Jobs Report Matter

July’s US Jobs Report raised concerns about the labor market, fueling speculation about aggressive Fed rate cuts. However, Friday’s Personal Income and Outlays Report signaled an inflation heat-up, challenging bets on multiple Fed rate cuts. The US Jobs Report will likely dictate the Fed’s policy outlook, influencing risk appetite.

Rising unemployment and softer wage growth would curb consumer spending, a key driver of the US economy. With elevated inflation, a sharply deteriorating labor market may also revive stagflation fears, adding uncertainty about Fed monetary policy.

Why Do Traders Need to Watch the Bank of Japan and the Japanese Yen?

A potentially more dovish Fed rate path coincides with a possible Bank of Japan rate hike in the fourth quarter. The combination of Fed rate cuts and a BoJ rate hike could sink USD/JPY, potentially triggering a Yen Carry Trade unwind.

The USD/JPY has fallen from 150.917 (August 1) to 146.948 (September 1) over expectations of a narrower interest rate differential, in favor of the yen. A sharper fall in the USD/JPY pair could trigger margin calls on risk asset holdings and force investors to unwind Yen carry trades, further strengthening the Yen.

In 2024, the Nasdaq Composite Index plunged 11.2% from July 31 (2024) to August 5 (2024) in response to the BoJ reducing its purchases of Japanese Government Bonds (JGBs) and unexpectedly raising interest rates. The July monetary policy decision led to margin calls and a yen carry trade unwind.

US Futures Rise but Sit on Shaky Ground

Beyond Asia, attention shifted to US markets, where stock futures edged higher in the morning session. Upbeat data from China and hopes for a US-China trade deal lifted US stock futures. China’s chief trade negotiator Li Chenggang met with US officials last week to discuss trade terms.

The Nasdaq 100 E-mini and S&P 500 E-mini rose 17 points and 4 points, respectively, while the Dow Jones E-mini gained 45 points. However, the gains were modest given market caution ahead of this week’s key economic data releases, leaving US futures on shaky ground.

Outlook: US Labor Market Data in Focus

Looking ahead, investors should brace for heightened market volatility. US JOLTs job openings, ADP employment change, initial jobless claims, and the Jobs Report will spotlight the US labor market.

Softer labor market data would likely raise expectations of multiple Fed rate cuts, lifting sentiment. On the other hand, stronger jobs data could signal a more hawkish Fed rate path, weighing on stocks. The BoJ will likely be closely monitoring the data and the Fed’s policy signals. It’s plausible for the BoJ to delay rate hikes if the Fed hints at aggressive rate cuts to avoid market disruption.

Technical Levels to Watch

The broader short-term bias remains bullish following the morning gains. However, bullish momentum hinges on the upcoming Jobs Report (September 5).

Dow Jones

• Resistance: August 22 high of 45,841, 46,000, then 46,500.
• Support: 45,500, 45,000, and then the 50-day EMA (44,513).

Nasdaq 100

• Resistance: August 18 high of 23,882, 24,000, then 24,500.
• Support: The 50-day EMA (23,094), and then 23,000.

S&P 500

• Resistance: August 28 high of 6,523 and then 6,750.
• Support: 6,400, the August 20 low of 6,363, and then the 50-day EMA (6,332).

Will US labor market data and Fed speakers send US markets to new highs? This week could prove pivotal. Follow our live coverage and consult our economic calendar.