Dow Jones futures rally as sentiment improves due to dovish tone surrounding Fed outlook

• Dow Jones futures surge as US labor data increases the odds of two interest rate cuts by the Fed.
• US stock markets may struggle as market sentiment weakened in response to President Trump's sweeping reciprocal tariffs.
• Market caution prevails after the Trump administration dismissed BLS Commissioner Erika McEntarfer following a weaker-than-expected jobs report.

Dow Jones futures advance ahead of the US market opening on Monday, trading around 44,900, up by 0.46%, during European hours. Meanwhile, S&P 500 futures surge by 0.55% to near 6,300, and Nasdaq 100 futures appreciate 0.68% to trade above 23,000.

US stock index futures appreciate as market sentiment stabilizes, as Friday's weaker United States (US) jobs report prompted market reaction to price in two interest rate cuts by the Federal Reserve (Fed). Traders are now pricing in 63 basis points (bps) of cuts by year-end, up from around 34 bps on Thursday, with the first cut seen in September. It is important to note that lower borrowing costs could support the economic activities in the US, the world's largest economy.

US Nonfarm Payrolls (NFP) increased by 73,000 in July, compared to a 14,000 increase (revised from 147,000) seen in June. This figure came in weaker than the market expectation of 110,000. Additionally, the Unemployment Rate ticked higher to 4.2% in July from 4.1% in June, as expected.

However, the Dow declined 2.92%, the S&P 500 fell 2.36%, and the Nasdaq depreciated 2.17% in the previous session. The US stocks slumped as market sentiment struggled following US President Donald Trump's sweeping reciprocal tariffs ranging from 10% to 41%, set to go into effect on August 1.

Additionally, traders would likely adopt caution following the Trump administration's dismissal of Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer after a weaker-than-expected jobs report. This action could be a broader strategy to undermine the credibility of official inflation data, with potential implications for markets and Fed policy debates.