Dow 30: Futures edge higher after a week of decent gains

A recap of central bank policy decisions and member speak

Plenty of central bank decisions late last week after the FOMC’s (Federal Open Market Committee) 50bp (basis point) rate cut, where [1] the Bank of England held on rates as anticipated with an 8-1 vote and opted for a £100bn 12-month QT plan again, [2] the Bank of Japan also holding as expected with Governor Ueda on the “need to scrutinize” the uncertain global economic situation and unstable markets “carefully for the time being”, [3] the Norges Bank keeping rates as is with its statement saying that “a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon”, [4] the South African Reserve Bank with a 25bp cut to 8% with the governor advocating caution, [5] the Central Bank of the Republic of Turkey maintaining (at 50%) and so too [6] the People’s Bank of China when it came to their LPRs (Loan Prime Rates) last Friday only to cut its 14-day reverse repo rate this morning by 10bp to 1.85% and raising hopes of further cuts to other key rates in the coming months.

In terms of FOMC members speaking, there was the Fed's Waller that faster softening inflation pushed him to vote for a 50bp cut, Bowman the sole dissenter wanting a smaller 25bp cut to avoid misinterpreting it as "a premature declaration of victory", and Harker seeing the risks to inflation and employment as balanced.

Week Ahead: Preliminary PMIs, Fed Chairman Powell speaks, and pricing data

As for the week ahead, it starts off with preliminary PMIs (Purchasing Managers’ Index) out of S&P Global releasing later today expected to show an ongoing story of contraction (for most) when it comes to manufacturing while services sticks with expansionary prints, and the figures for the US no exception to that rule.

There are a few FOMC members speaking tonight (including a hawk and a dove), and plenty more later this week including Chairman Powell on Thursday. CB’s (Conference Board) consumer confidence releases tomorrow where it hasn’t managed to veer too far off 100 over the past several months, housing price data where month-on-month (m/m) figures have struggled, and so too the Richmond Fed’s manufacturing index.

A few more items out of the housing sector the day after and Thursday, add to it final GDP (Gross Domestic Product) for the second quarter seen at a respectable 2.9% (and the latest Atlanta Fed GDPNow print for the current quarter matching it), and durables for August after big moves in July.

And while the focus has been on the labour market and will remain the case, let’s not forget about pricing with PCE (Personal Consumption Expenditures) price index on Friday. The figures are for the month of August, and expectations are m/m growth will round to 0.2% for both headline and core. On the fiscal front, there’s been a deal to avert a shutdown with a vote this Wednesday on a continuing resolution to push out the date to December 20.

Dow Technical analysis, overview, strategies, and levels

The technical overview on the weekly time frame was and still is a ‘bull average’, where price is above all its main short and long-term weekly moving averages, at the upper end of the Bollinger Band, with a decent gap for the +DI over the -DI on the DMI (Directional Movement Index) front, but with an ADX (Average Directional Movement Index) not yet in trending territory. We’re working with a significantly large channel the movement within it can cause technical boxes on the weekly (and especially daily) to tilt from positive to negative, and as a result while the buys are in the conformist camp for those who expect the overview to hold and price to continue averaging higher, ideally only initiating off the weekly 1^st Support level after a significant reversal to avoid any initial stop-outs or a move back to the lower end of the channel. Those expecting a hold here or even a pullback are considered contrarians with sell strategies available off the weekly 1^st Resistance and Support levels. The daily time frame’s technical overview has also shifted to ‘bull average’ where there are more bullish key technical indicators, but keep in mind that price-indicator proximity and the narrower time frame can shift the technical narrative there with greater ease.

IG client* and CoT** sentiment for the Dow

There’s been a notable increase in net long bias among CoT speculators, reaching a heavy buy 70% on an increase in longs and a simultaneous reduction in shorts (longs +3,295, shorts -1,590), and comes as little surprise given the relatively high momentum correlation speculators in this index are known for. IG clients are an opposite majority sell and have taken it further into extreme sell territory shorting into price gains.

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.