Dow Jones & Nasdaq 100 edge lower on cautious Fed outlook and BoJ Risks

People’s Bank of China Keeps Rates Steady Despite Waning Consumption

Markets brace for turbulence as PBoC holds steady and Trump shocks the tech sector. US stock futures faced selling pressure at the start of the week despite the Fed’s rate cut. Traders turned cautious as US foreign and monetary policy decisions weighed on sentiment.

The People’s Bank of China (PBoC) kept the one-year and five-year loan prime rates (LPRs) steady at 3% and 3.5%, respectively, on Monday, September 22. Recent Chinese economic data revealed rising unemployment, weakening external demand, and waning domestic consumption. Lower interest rates could have potentially boosted consumer spending, offsetting the impact of US tariffs on the economy.

President Trump also caught the markets by surprise, announcing plans to force firms to pay an annual fee of $100,000 per H-1B visa for high-skilled workers. The new visa rule could impact the tech sector, which is reliant on talent from China and India. A $100,000 annual visa payment for skilled foreign workers could raise operating costs and squeeze margins, potentially pressuring share prices.

Trump made the visa announcement after Friday’s reportedly positive call with Chinese President Xi Jinping. The move could escalate tensions between the US and China ahead of the expiration of the 90-day tariff truce. A full-blown trade war could heavily impact market sentiment and US stock futures.

USD/JPY Rises, Offering Market Comfort

While the PBoC and US foreign policy weighed on sentiment, a weaker Japanese yen, cushioned the downside for US stock futures. USD/JPY rose 0.26% to 148.339 in morning trading on Monday, September 22. The pair continued to recover from last week’s 145.481 low. The softer yen fueled demand for Japanese stocks, sending the Nikkei 225 up 1.55%.

Why do US stock futures traders need to watch the USD/JPY pair and the Nikkei 225?

A sharp drop in the USD/JPY pair and Nikkei 225 could signal rising risk of a yen carry trade unwind. On Friday, the Bank of Japan maintained interest rates at 0.5%. However, two policymakers dissented from the interest rate decision, fueling speculation about an October rate hike. BoJ rate hikes. A hawkish BoJ, combined with Fed rate cuts in the fourth quarter, could fuel demand for the yen.

A falling USD/JPY could trigger margin calls, forcing investors to unwind leveraged US stock investments to repay cheap Japanese debt (yen carry trade unwind). In 2024, the Nasdaq Composite Index plunged 11% in three trading sessions after the BoJ unexpectedly raised interest rates and cut Japanese Government Bond (JGB) purchases. The BoJ’s July 2024 interest rate decision, coinciding with dovish Fed policy bets, sent the USD/JPY crashing from 152.748 (July 31) to 141.684 (August 5).

Markets React: US Stock Futures Dip Ahead of a Wave of Fed Speakers

US stock futures retreated in morning trading on Monday, September 22. The Dow Jones E-mini dropped 81 points, the Nasdaq 100 E-mini fell 18 points, and the S&P 500 E-mini declined 7 points.

US equity markets have typically reached new all-time highs when the Fed has lowered interest rates, and US indexes are at or near record highs. However, more hawkish Fed policy signals could challenge expectations for US equity markets to repeat historical trends.

Fed Speakers Take Center Stage

Later Monday, the Fed will be in the spotlight after last week’s rate cut. Fed Vice Chair John Williams and FOMC members Beth Hammack, Stephen Miran, and Alberto Musalem are scheduled to deliver speeches.

Clear support for further monetary policy easing in October and December could boost demand for risk assets. Lower borrowing costs may raise earnings and lift share prices. However, calls to delay further policy easing until December could weigh on sentiment. With Fed Chair Powell and a wave of FOMC members speaking this week, it could be a pivotal week for US stock futures.

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

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

However, the bullish bias hinges on the BoJ’s policy outlook, US foreign policy, upcoming US data, and Fed guidance. For traders, here are the key levels driving market trends.

Dow Jones

• Resistance: September 19 record high of 46,738 and then 47,000.
• Support: 46,500, 46,000, and then the 50-day EMA (45,155).

Nasdaq 100

• Resistance: September 19 record high of 24,888 and 25,000.
• Support: 24,500, 24,000, and the 50-day EMA (23,576).

S&P 500

• Resistance: September 19 record high of 6,732 and then 7,000.
• Support: 6,500 and the 50-day EMA (6,448).

September Outlook: BoJ, Trade, Inflation, and the Fed in Focus

Traders should closely monitor Bank of Japan chatter and USD/JPY trends. Later in the session, Fed speakers also require consideration. However, key economic indicators this week will also influence sentiment. The US S&P Global Services PMI (September 24), jobless claims (September 25), and the Core PCE Price Index (September 26) could affect the Fed’s rate path and demand for risk assets.

These key events could extend or reverse September’s gains. Follow our live coverage and consult our economic calendar.