Dow Jones & Nasdaq 100 Dip on China Margin Pressures, BoJ Jitters

Bank of Japan Discussed a Near-Term Rate Hike

The Bank of Japan was in the spotlight amid shifting bets on an October interest rate hike. The BoJ’s Summary of Opinions revealed that board members discussed a near-term rate hike, weighing on sentiment.

Notably, the number of policymakers tilting toward a near-term rate hike was higher than the two board members who dissented from the September decision to maintain interest rates at 0.5%.

Although four board members leaned hawkish, a majority remained cautious. One policymaker, notably, warned of market disruption, stating:

“A policy interest rate hike at this point, which would come as a surprise to the market, should be avoided.”

Nevertheless, the more hawkish tone dented sentiment, with the Nikkei slipping in tandem with US futures—a reminder that BoJ rhetoric quickly ripples through global markets.

The reference to surprising the markets was telling. In July 2024, the BoJ reduced its purchases of Japanese Government Bonds (JGBs) and unexpectedly raised interest rates, triggering a yen Carry Trade unwind.

USD/JPY plunged from 153.889 on July 31, 2024, to 139.576 on September 16, 2024. The USD/JPY pair’s slump triggered margin calls, forcing traders to exit risk assets to repay Japanese yen-denominated debt. The Nasdaq Composite Index slid 11.2% from July 31, 2024, to August 5, 2024.

The potential threat of a repeat market event could weigh on risk appetite. Traders should closely monitor USD/JPY and Nikkei 225 trends to assess the risk of another yen carry trade unwind.

While the Bank of Japan’s monetary policy stance remains a focal point, Chinese economic data also influenced demand for risk assets.

China Manufacturing Sector Sees Renewed Margin Pressures

The RatingDog Manufacturing PMI increased to 51.2 in September, up from 50.5 in August. A pickup in new orders lifted production. However, rising input price inflation and falling average selling prices signaled renewed margin pressures, leading to further job cuts. Rising unemployment may further weaken consumer spending, challenging Beijing’s 5% GDP growth target.

Weakness in the Hang Seng underlined investor nerves. Combined with BoJ jitters, China’s renewed margin pressures dragged on US futures.

How Are US Stock Futures Reacting Ahead of Key Data?

US stock futures posted modest losses in morning trading on Tuesday, September 30. The Dow Jones E-mini fell 20 points, the Nasdaq 100 E-mini dropped 13 points, and the S&P 500 E-mini declined 3 points.

Will US JOLTs Job Openings Boost Fed Rate Cut Bets?

Attention now shifts to US labor data. A sharper drop in JOLTs openings could feed bets on an October cut, while a stronger print may stall the rally.

Economists forecast JOLTs job openings to drop from 7.181 million in July to 7.1 million in August.

A sharper drop in job openings would indicate weaker demand for labor, supporting a more dovish Fed rate path. A weakening labor market may soften wage growth and curb consumer spending, cooling inflation. Rising bets on October and December Fed rate cuts could lift sentiment. However, a higher reading could weigh on US stock futures ahead of Friday’s US Jobs Report.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

Despite the morning losses, US stock futures trade above the 50-day and 200-day Exponential Moving Averages (EMAs), reaffirming a short-term bullish bias.

However, the near-term outlook hinges on tariff headlines, the Bank of Japan’s policy outlook, FOMC members’ commentary, and US labor market data. Key levels traders are monitoring include:

Dow Jones

• Resistance: The September 23 record high of 47,055.
• Support: 46,500, 46,000, and then the 50-day EMA (45,451).

Nasdaq 100

• Resistance: September 22 record high of 25,027 and 25,250.
• Support: 24,500, 24,000, and the 50-day EMA (23,835).

S&P 500

• Resistance: September 22 record high of 6,757, followed by 7,000.
• Support: 6,600 and then the 50-day EMA (6,502).

Why Is This Week Crucial for the Market Outlook?

Markets enter Q4 at a crossroads—whether Fed cuts or a yen shock defines sentiment may hinge on this week’s data.

Traders should consider BoJ rhetoric and USD/JPY trends. Hawkish BoJ chatter and dovish Fed cues could raise the risk of a yen carry trade unwind, impacting risk sentiment. Meanwhile, trade developments and US labor market data will also affect risk assets.

Progress toward a US-China trade deal and dovish Fed signals could lift sentiment. However, rising US recession risks and increasing trade friction could test buyer demand for US stock futures early in the final quarter.

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