Dow Jones & Nasdaq 100 Mixed on Tariff Threats and Fed Rate Cut Bets

US Stock Futures Mixed as Trade Tensions Mount

US stock futures wavered on Thursday as escalating US-China trade tensions and tariff threats fueled demand for safe haven assets and investor caution.

Beijing’s announcement of rare earth export restrictions has riled Washington, raising the threat of a full-blown trade war. Rare earth minerals are critical components in the tech and defense industries.

FOMC voting member Stephen Miran warned of the potential economic fallout from a trade war, stating:

“There’s now more downside risk than there was a week ago, and it is incumbent upon us as policymakers to recognize that should get reflected in policy.”

China announced further restrictions on rare earth exports last week, resulting in punitive tariff threats.

Markets continued to react to the latest escalation in trade tensions. USD/JPY dropped 0.25% to 150.652 in early trading amid demand for safe-haven assets. A stronger Japanese yen could reverse yen carry trades, weighing on US stock futures.

The Bank of Japan was in the spotlight on Wednesday, October 15. The IMF warned that the BoJ should raise interest rates very gradually as uncertainties over global trade increase downside risks to the global economy. Analysts had previously raised concerns about BoJ rate hikes and Fed rate cuts potentially triggering another yen carry trade unwind, disrupting global markets.

Markets still remember the BoJ’s unexpected July 2024 rate hike and reduction to Japanese Government Bond (JGB) purchases. The Dow Jones E-mini and the Nasdaq 100 E-mini tumbled 6.3% and 11.7%, respectively, in response to the BoJ’s monetary policy decision.

US Stock Futures React to Trade Tensions and Fed Rate Cut Bets

US stock futures posted mixed performances in early trading on Thursday, October 16. The Dow Jones E-mini rose 6 points, while the Nasdaq 100 E-mini dropped 25 points and the S&P 500 E-mini declined 7 points. Expectations of back-to-back Fed rate cuts in October and December limited the downside.

According to the CME FedWatch Tool, the probability of 25-basis-point cuts in October and December stood at 97.8% and 92.8%, respectively.

Fed Speakers and Capitol Hill in the Spotlight

Later on Thursday, the absence of key US economic data will expose US stock futures to Fed chatter. Several voting FOMC members are to speak, including Stephen Miran, Christopher Waller, Michael Barr, and Michelle Bowman.

Growing concerns about the labor market and the effects of a prolonged US government shutdown on the economy may boost demand for risk assets. However, calls to delay rate cuts to tame inflation and the risk of stagflation may weigh on sentiment.

Despite rising downside risks to the US and global economy, technical indicators continue to show that underlying momentum remains bullish.

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

Despite a mixed start, US stock futures remained 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 developments, the Senate vote, and Fed speakers. Key levels traders should monitor include:

Dow Jones

• Resistance: 47,000, the October 3 record high of 47,323.
• Support: 46,500, 46,000, the 50-day EMA (45,886).

Nasdaq 100

• Resistance: 25,000, October 9 record high of 25,394, 25,500.
• Support: 24,750, 24,500, the 50-day EMA (24,272).

S&P 500

• Resistance: 6,750, October 9 record high of 6,812, 7,000.
• Support: 6,600, the 50-day EMA (6,590).

October Market Outlook: China, Capitol Hill, and the IMF/World Bank Meetings in Focus

US stock futures face downside risks as US-China trade tensions intensify. However, Fed commitment to support the labor market and the broader economy could counter the downside risks.

Meanwhile, traders should closely monitor Capitol Hill as the US government shutdown extends into its 16th day. A prolonged shutdown may heighten stagflation risks, given that inflation remains elevated.

US Treasury Secretary Scott Bessent commented on the effect of the shutdown, stating:

“We believe that the shutdown may start costing the US economy up to $15 billion a day.”

This would surpass the $11 billion a day during the 2018-2019 shutdown, which shaved 0.4 percentage points off GDP. Traders should watch out for GDP growth forecasts from the IMF/World Bank annual meetings, given the rising concerns about the global economic outlook.

Follow our live coverage and consult the economic calendar for real-time market updates.