Dow Jones & Nasdaq 100 Futures Rise on Japan Jobs Data; US Services PMI Next

Japanese Unemployment Rises, Cooling BoJ Hike Bets

US stock futures got a boost in early trading on Friday, October 3. Japan’s unemployment rose more than expected in August, sinking bets on an October Bank of Japan rate hike.

Unemployment increased from 2.3% in July to 2.6%, suggesting a potential slowdown in wage growth. Slower wage growth could curb consumer spending and dampen inflationary pressures. A softer inflation outlook would support a less hawkish BoJ policy stance, weighing on the Japanese yen.

Crucially, a delay to BoJ rate hikes could ease risks of a yen carry trade unwind and market disruption, lifting sentiment.

Bank of Japan Governor Kazuo Ueda spoke shortly after the labor market data, warning of the potential effect of US levies and global economic uncertainty on wage growth, stating:

“If uncertainty regarding overseas economies and trade policies remains high, firms may place stronger emphasis on cost-cutting and may weaken their efforts to reflect price increases in wages.”

Yen Weakness Sparks Nikkei Rally

The USD/JPY pair rose 0.25% to 147.619 in morning trading, sending the Nikkei 225 1.67% higher. The softer yen and the Nikkei’s gains boosted demand for US stock futures.

Crucially, a cautious Bank of Japan, coupled with rising bets on October and December Fed rate cuts, creates a perfect storm for risk assets.

US-China Trade Talks: Optimism Meets Tensions

Hopes for a US-China trade deal got a much-needed boost, contributing to the morning session gains. CN Wire reported:

“U.S.-China Trade: Treasury Secretary Scott Bessent expects a ‘big breakthrough’ in the next trade talks. The current truce expires Nov. 10, and he said a meeting between President Trump and Xi Jinping during their Korea visit would be helpful.”

However, he also criticized China for targeting US farmers by using soybeans as leverage. President Trump commented:

“The Soybean Farmers of our Country are being hurt because China is, for “negotiating” reasons only, not buying. I’ll be meeting with President Xi, of China, in four weeks, and Soybeans will be a major topic of discussion.”

The upcoming APEC Summit in South Korea could make or break a US-China trade deal. A full-blown trade war may trigger a flight to safety, impacting demand for US stock futures.

How Are US Stock Futures Reacting to Key Data, Central Bank Cues, and Trade Headlines?

US stock futures extended their overnight gains on Friday, October 3. The Dow Jones E-mini rose 59 points, the Nasdaq 100 E-mini climbed 52 points, and the S&P 500 E-mini gained 11 points as traders cemented bets on an October Fed rate cut. Notably, US stock futures could extend their winning streaks to six sessions on Friday, with traders also eyeing a December rate cut.

Later Friday, US Services PMI data and Fed speakers will influence demand for risk assets. Economists forecast the ISM Services PMI to fall from 52.0 in August to 51.7 in September.

A larger-than-expected drop could revive recession jitters, lifting expectations of multiple Fed rate cuts in the fourth quarter. However, traders should also focus on the sub-components, including employment and price trends.

Rising prices, job cuts, and a PMI drop below the neutral 50 level could trigger stagflation fears, weighing on sentiment. On the other hand, lower prices, job cuts, and a PMI above the 50 level could boost demand for US stock futures.

Beyond the data, traders should closely monitor Fed speakers for views on rate cuts and developments on Capitol Hill.

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

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

However, the near-term outlook hinges on upcoming US data, Fed commentary, and trade developments. Key levels traders are monitoring include:

Dow Jones

• Resistance: The September 23 record high of 47,055.
• Support: 46,500, 46,000, the 50-day EMA (45,607).

Nasdaq 100

• Resistance: October 2 record high of 25,180, 25,250.
• Support: 25,000, 24,500, the 50-day EMA (23,980).

S&P 500

• Resistance: October 2 record high of 6,782, 7,000.
• Support: 6,600, the 50-day EMA (6,534).

October Volatility Risk: What Traders Should Look Out For

US stock futures eye a six-day winning streak. The US government shutdown could support a more dovish Fed rate path, a net positive for risk assets, countering a negative economic drag. Will the Fed deliver an October rate cut and signal further easing or a one-and-done rate cut?

FOMC members’ speeches will provide crucial insights into the Fed’s policy stance as the government shutdown delays key US economic data.

Developments on Capitol Hill could also influence sentiment. The 35-day shutdown in 2018-2019 shaved roughly 0.4% off the US GDP. Other shutdowns have had negligible effects on the economy. The longer the shutdown, the greater the impact on the US economy and Fed policy.

Commenting on October market trends, The Kobeissi Letter warned of a possible jump in volatility, stating:

“Since 1945, S&P 500 volatility in October has been +33% above the average for the other 11 months. The next closest month is January, with volatility +16% above average.”

Referencing market performances, The Kobeissi Letter added:

“October is also typically the 3rd-weakest month in Presidential Year 1, with an average return of -0.58% since 1929, though it ended positively 54% of the time. After strong rallies like the +35% surge since April, the index has historically posted a -0.60% loss in October, but averaged a +3.0% gain in Q4, according to Carson Investment Research.”

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