Dow Jones & Nasdaq 100 Mixed Ahead of US CPI Report as China Deflation Resurfaces

Markets Split as China Deflation Meets US CPI Countdown

China’s economy took center stage in early trading as tariffs weighed on demand and deflation risks resurfaced. China’s consumer prices fell 0.4% year-on-year in August after stalling in July. Consumer price trends suggested weakening domestic consumption and reflected the effect of price wars as US tariffs weighed on external demand.

However, the fall in consumer prices also stemmed from elevated prices in the previous year and declining food prices. According to CN Wire:

“August CPI turned negative year-on-year, mainly due to a high base last year and weaker-than-seasonal food price growth. By category, the decline was mainly due to lower food prices. As policies to boost domestic demand and consumption continued to take effect, core CPI rose for the fourth consecutive month. In August, core CPI excluding food and energy increased by 0.9% year-on-year, 0.1 percentage points higher than last month.”

Producer prices fell at a slower pace, signaling a potential turnaround in demand. Producer prices fell 2.9% YoY, the rate of decline slowing from July’s 3.6% drop.

Price shifts lifted demand for risk assets, but caution set in as traders awaited US inflation data, leaving US stock futures mixed.

US Stock Futures Mixed Ahead of US CPI Report

US stock futures eyed a three-day winning streak in early trading on Wednesday, September 10, after the S&P 500 closed at record a high overnight. The Nasdaq 100 E-mini rose 24 points, the S&P 500 E-mini gained 12 points, while the Dow Jones E-mini fell 64 points.

Easing pressure on China’s producer prices and rising expectations of aggressive Fed rate cuts supported demand for risk assets.

According to the CME FedWatch Tool, the chances of a September Fed rate cut stand at 100% (September 2: 92.7%). Furthermore, the probability of a 50-basis-point rate cut in September rose from 0% to 6.3%. A weaker-than-expected US Jobs Report and revisions to 2024 nonfarm payrolls influenced sentiment toward the Fed rate path.

However, the mixed morning performances reflected investor caution. A cooling US labor market revived concerns about an economic slowdown ahead of this week’s key US inflation data.

Outlook: Producer Prices in Focus as US CPI Report Looms

Today’s US producer prices are in focus ahead of tomorrow’s CPI, with forecasts at 3.3% YoY, matching July.

A softer reading may boost expectations of a 50-basis-point September Fed rate cut, lifting sentiment. Economists consider producer prices a leading indicator of inflation. Producers adjust prices in response to demand, passing cost savings or rising costs on to consumers.

However, a stronger print may fuel speculation about stagflation, affecting risk appetite.

Looking ahead, August’s US CPI Report (September 11) will be the main event of the week. Today’s producer prices and tomorrow’s CPI data will provide traders with insights into the level of stagflation.

Why do traders need to worry about stagflation?

Stagflation squeezes margins: rising costs meet weak growth, limited pricing power, and cooling consumer demand.

While Fed rate cut expectations may temporarily boost sentiment, stagflation risks remain a drag on the long-term outlook.

E-mini Futures: Technical Levels to Watch

Despite the mixed morning sessions, the short-term bias remained bullish. However, bullish momentum hinges on key inflation-linked data and the Fed’s looming monetary policy decision. For traders, here are the key levels that could determine market direction in the coming sessions.

Dow Jones

• Resistance: August 22 high of 45,841, 46,000, then 46,500.
• Support: 45,000, then the 50-day EMA (44,733).

Nasdaq 100

• Resistance: August 18 high of 23,882, 24,000, then 24,500.
• Support: The 50-day EMA (23,225), and then 23,000.

S&P 500

• Resistance: September 5 high of 6,542 and then 6,750.
• Support: 6,400 and then the 50-day EMA (6,367).

With US inflation and the Fed decision looming, traders brace for data that could define September. Follow our live coverage and consult our economic calendar.