Dow 30: Futures little changed as traders brace for CPI and FOMC

Digesting stronger US labor data

Plenty of noteworthy data emerged from the US labour market late last week, and it generally exceeded expectations. Key highlights include Non-Farm Payrolls for November, surpassing estimates with a 199K increase. The unemployment rate saw a significant drop to 3.7%, accompanied by a parallel decrease in the underemployment rate to 7%.

Wage growth, higher than anticipated at 0.4% month-on-month, held steady at 4% year-on-year. The labour force participation rate rose to 62.8%, while the employment-population rate increased from 60.2% to 60.5%. Additionally, weekly claims reported figures beneath estimates for both initial and continuous claims.

A notable positive was the University of Michigan's preliminary readings on consumer sentiment, surging to 69.4. Particularly noteworthy was the drop in inflation expectations, with the 12-month figure plummeting from 4.5% to 3.1% and the five-year from 3.2% to 2.8%.

Despite successive weeks of gains, key indices exhibited a mixed performance. In the bond market, Treasury yields experienced another week of losses at the furthest end, and similarly in real terms, while the 10-year remained relatively unchanged.

Week ahead: key data releases, auctions, and FOMC decision insight

As for the week ahead, it’s an impacting one and on a few fronts for the US. In terms of data, expect Consumer Price Index (CPI) readings for November to take the attention early on, where expectations are its y/y headline print will drop a notch to 3.1%, but remain stickier when it comes to its core. Producer prices will be the day after, with y/y figures that have been trending in the right direction, and trade pricing on Thursday after negative prints for both exports and imports (m/m and y/y) last time around.

Releasing at the same time will be retail sales after the small dent for October that managed to best estimates even if in contracting territory. Friday includes preliminary Purchasing Managers’ Index (PMI) for this month, where manufacturing was a miss, falling back into contraction, while services improved to remain in expansionary territory.

There will be a few auctions, and for tonight, it includes the 10-year, with the 30-year tomorrow night to see how well demand manages to keep up with supply. And while all that could sway what policymakers could do, we will find out what they will actually do this Wednesday with the Federal Open Market Committee (FOMC) policy decision. Expectations are they will hold (CME’s FedWatch), and while market participants will note any tweaks in its statement (after they included tighter financial conditions last time around when yields were significantly higher) and the tone from Federal Reserve (Fed) Chairman Powell in his press conference thereafter, expect heavy attention on their projections and dot plot and the type of divergence from what market pricing suggests.

Dow Technical analysis, overview, strategies, and levels

Lack of a play on the weekly time frame with the intraweek highs, and lows, within its previous weekly first levels, though the little change by the close and near the highs keeping plenty of technical boxes in the green in this time frame. It's greener on the daily time frame, though the intraday action also lacked a play for Thursday's first levels, even when factoring Friday's intraday highs, the technical overview in the shorter-term time frame also matching this one but an ADX (Average Directional Movement Index) in trending territory capable of tilting it to a stalling bull instead.

IG client* and CoT** sentiment for the Dow

As for sentiment, a notable shift amongst CoT speculators from heavy sell 68% to the middle in just one week (longs up 3,718, sizable drop in shorts by 21,645), ending months of majority sell bias, though interesting to see if it can move, and stay in majority buy territory for a longer period than it did last time. IG clients are still in extreme sell territory with little change week-on-week, but intraweek moves show fresh shorts looking to unwind swiftly.

Dow chart with retail and institutional sentiment

• _{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.}
• _{**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.}