Dow Jones & Nasdaq 100 Slip, Will Tariff Risks Challenge Fed Cut Cushion for Markets

Fed Rate Cut Hopes Clash With Trade War Fears

US stock futures edged lower on Friday, September 12, despite markets lingering bets on a 50-basis-point Fed rate cut. China reacted after Mexico announced plans to hike levies on automobile shipments from China from 20% to 50%.

China Warns Mexico on Tariffs: What’s at Stake

Beijing responded to Mexico’s threat to target the auto sector, reportedly stating:

“ We hope Mexico will be extremely cautious and think twice before acting. China and Mexico are mutually important trade partners. We are not willing to see both sides’ economic cooperation affected by this situation. China will take necessary measures to resolutely safeguard its legitimate rights and interests.”

Why Is Mexico Important To China’s Auto Sector, and What Does It Mean for Traders?

Mexico is the largest exporter of autos to the US and is a key hub for Chinese car manufacturers, including BYD, Chery, and MG Motors. Higher tariffs could reignite trade tensions, especially if the US administration orchestrated the planned levy hike.

US tariffs on third-party transshipments and recent trade developments could be a key talking point. Higher-level US-China trade talks are set to resume. CN Wire reported:

“Treasury Secretary Scott Bessent will meet Vice Premier He Lifeng in Madrid to discuss trade, economic and national security issues, with talks also covering TikTok’s status and efforts to combat money laundering, according to a Treasury statement cited by media. The meeting is part of Bessent’s Sept. 12-18 trip to Spain and Britain, where he is scheduled to meet his counterparts, marking another sign that discussions between the two sides are intensifying.”

US Steps Up Proxy Trade War Pressure

The latest tariff news followed reports that President Trump is pushing the EU to raise tariffs on China to 100% and pledging to mirror the EU’s levies on Chinese shipments.

In July, Vietnam agreed to a 40% tariff on third-party transshipments, potentially aimed at China. Vietnam is one of China’s key trading partners in Southeast Asia.

Traders have largely ignored the US administration’s proxy trade war with China. However, an escalation in trade tensions could affect sentiment, weighing on US stock futures early in the Friday morning session.

ING Economics commented on the current tariff landscape, stating:

“Calm and more stability on trade were short-lived. Uncertainty is back as major trade agreements are more fluid than US trading partners had hoped for. […] Fears of extreme developments might be gone, but the risk of further trade and tariff escalation remains real.”

Markets React: Futures Edge Lower

US stock futures trended lower in early trading on Friday morning, after the main indexes hit record highs overnight. The Nasdaq 100 E-mini slipped 15 points, the S&P 500 E-mini declined 5 points, while the Dow Jones E-mini dropped 24 points.

Fed rate cut bets cushioned the downside for US stock futures as focus shifts from inflation to tariffs. A rapidly cooling US labor market continued to support expectations of multiple Fed rate cuts.

According to the CME FedWatch Tool, the probability of a September Fed rate cut remains at 100%. However, the chances of a 50-basis-point rate cut in September eased from 8.9% to 7.3% in morning trading.

Consumer Sentiment Data Could Shift Rate Path

Today’s Michigan Consumer Survey could influence market sentiment. Economists forecast the Michigan Consumer Sentiment Index to slip from 58.2 in August to 58 in September.

Waning sentiment could indicate weaker consumer spending. Given that private consumption accounts for approximately 67% of US GDP, a pullback in spending could slow the US economy. A cooling labor market and weakening economic backdrop could support more aggressive Fed rate cuts.

On the other hand, a higher reading may temper bets on multiple Fed rate cuts, weighing on risk assets.

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

Despite the morning losses, the short-term bias remains bullish. However, bullish momentum hinges on the Fed’s upcoming monetary policy decision, trade developments, and recession risks. For traders, here are the key levels that could determine market direction in the coming sessions.

Dow Jones

• Resistance: September 11 record high of 46,176, then 46,500.
• Support: 46,000, 45,500, then the 50-day EMA (44,835).

Nasdaq 100

• Resistance: September 11 record high of 24,046 and 24,500.
• Support: 23,500, the 50-day EMA (23,285), and 23,000.

S&P 500

• Resistance: September 11 record high of 6,600 and 6,750.
• Support: 6,500 and the 50-day EMA (6,384).

September Outlook: Trade and Fed in Focus

With US consumer sentiment, the Fed interest rate decision, and tariffs in focus, traders should brace for key events that could redefine September. Follow our live coverage and consult our economic calendar.