Dow Jones & Nasdaq 100 Futures Advance on China Data and Trade Agreement Hopes

US Administration Fuels China Trade Deal Optimism

US President Trump and Treasury Secretary Scott Bessent fueled hopes of a China trade deal on Sunday, October 19, boosting demand for US stock futures.

President Trump reportedly described President Xi as ‘a smart leader’ and suggested a willingness for a deal, easing fears of a full-blown US-China trade war. Treasury Secretary Scott Bessent reinforced optimism, stating:

“This evening, Vice Premier He Lifeng and I engaged in frank and detailed discussions regarding trade between the United States and China. We will meet in-person next week to continue our discussions.”

Trump and Bessent’s stance signaled a U-turn from last week’s rhetoric and the US President’s threat of an additional 100% tariff on Chinese shipments.

The Hang Seng Index rallied 2.42%, while Mainland China’s CSI 300 and the Shanghai Composite gained 0.81% and 0.64%, respectively, joining US stock futures in positive territory. Meanwhile, USD/JPY advanced 0.16% to 150.850, reflecting a pickup in risk appetite.

Chinese Economic Indicators Beat Forecasts, Easing Global Recession Jitters

While easing trade tensions lifted sentiment, Chinese economic indicators raised hopes that Beijing will achieve its 5% GDP growth target for 2025.

The economy slowed from 5.2% year-on-year in the second quarter to 4.8% in the third quarter. However, the economy expanded 1.1% quarter-on-quarter, matching the second quarter’s trend.

Notably, industrial production increased 6.5% year-on-year in September, after rising 5.2% in August, indicating a sharp pickup in demand. September’s production numbers aligned with a surge in external demand. Exports soared 8.3% year-on-year in September, up sharply from 4.4% in August.

An unexpected fall in unemployment provided an additional boost to sentiment. Rising demand and output may ease margin pressures, supporting jobs and wages. Tighter labor market conditions may spur private consumption and fourth-quarter GDP growth.

US Stock Futures Advance amid Rising Fed Rate Cut Bets

The better-than-expected Chinese economic data contributed to the gains across US stock futures.

US stock futures posted gains in early trading on Monday, October 20. The Dow Jones E-mini rose 63 points, the Nasdaq 100 E-mini gained 68 points, and the S&P 500 E-mini advanced 13 points.

Rising bets on back-to-back Fed rate cuts in October and December added to the positive market sentiment.

According to the CME FedWatch Tool, the chance of a 25-basis-point October Fed rate cut stands at 98.9%, up from 96.3% on October 16. Meanwhile, the probability of a 25-basis-point December cut stands at 94.3%, compared to 88.2% on October 16.

Japan Election and Capitol Hill in the Spotlight

Later on Monday, the looming election for Japan’s next prime minister is likely to influence risk sentiment. Reports from the weekend suggested a potential alliance between Japan’s Liberal Democratic Party (LDP) and the Japan Innovation Party (JIP), commonly referred to as Ishin.

The LDP and JIP could sign an agreement today, raising the chances of LDP leader Sanae Takaichi becoming Japan’s first woman prime minister. Crucially, Takaichi supports an ultra-loose monetary policy, potentially ending the Bank of Japan’s plans to raise interest rates. A more dovish BoJ rate path could fuel yen carry trades, lifting market appetite for US stock futures.

Across the Pacific, traders should continue monitoring Capitol Hill as the US government shutdown enters its nineteenth day. A prolonged shutdown would delay key US economic data reports, supporting a more dovish Fed policy stance ahead of the October 29 interest rate decision.

However, traders should consider the potential impact of a failed LDP-Ishin alliance and the US Senate passing a stopgap funding bill. Crucially, a US government reopening could expedite the release of delayed US economic indicators. The data will provide traders with insights into the labor market and economy, influencing the Fed rate path.

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

Following the morning gains, US stock futures traded above the 50-day and 200-day Exponential Moving Averages (EMAs), reaffirming bullish momentum.

However, the near-term trend will hinge on US-China trade headlines, Senate votes on stopgap funding bills, and the Japan election. Key levels traders should monitor include:

Dow Jones

• Resistance: 46,500, 47,000, the October 3 record high of 47,323.
• Support: 46,000, the 50-day EMA (45,914).

Nasdaq 100

• Resistance: 25,250, October 9 record high of 25,394, 25,500.
• Support: 25,000, 24,500, the 50-day EMA (24,327).

S&P 500

• Resistance: 6,750, October 9 record high of 6,812, 7,000.
• Support: 6,600, the 50-day EMA (6,598).

October Market Outlook: China and Capitol Hill in Focus

US stock futures received much-needed support after Trump’s 100% tariff threat fueled fears of an escalation in the US-China trade war. While optimism dominated early trade, caution remains as investors weigh the risks of stalled negotiations.

In the US, developments on Capitol Hill will be pivotal, given that the Fed entered its blackout period on Saturday, October 18. The lack of Fed forward guidance and economic data will leave US stock futures exposed to geopolitics and Japan’s looming election. LDP leader Takaichi could become prime minister on Tuesday, October 21.

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