Dow 30: Futures hold as market participants brace for FOMC race cut

Equity gains, yields drop, and generally positive data

A few items left to process late last week with trade pricing for August showing imports month-on-month (m/m) -0.3% a slight miss and a larger one for exports -0.7%, the year-on-year (y/y) figures for both falling to 0.8% and -0.7%, respectively. There was also UoM’s (University of Michigan) preliminary consumer inflation expectations where the one-year fell a notch to 2.7% but the five-year rose to 3.1%. Its consumer sentiment print improved to 69. But otherwise, market focus was on what the Federal Reserve (Fed) was going to do next, and key US equity indices finished the week undoing most of the losses suffered the week before with tech leading the charge. The bond market saw Treasury yields in for another weekly decline and so too in real terms, and breakeven inflation rates higher week-on-week (w/w) but averaging lower ever since breaching key levels at the start of August.

Week Ahead: Incoming FOMC rate cut, retail sales, and housing data

As for the week ahead, the big one is on Wednesday once more with the FOMC’s (Federal Open Market Committee) announcement regarding its policy decision, and what should be the first rate cut in the current cycle. Market pricing (LSEG) is fully pricing in a reduction, and where the odds are near the middle on 25bp vs. 50bp with a slight edge for the latter (the WSJ report on it being a close call and a former Fed Governor on the strong case for 50bp aiding if not fueling that narrative). Market participants will also be paying close attention to what might be in store at later meetings and how much market pricing has diverged from the Fed’s ‘dot plot’, with an eye on their projections regarding the economy, inflation, and unemployment.

In terms of economic data, plenty of housing data from tomorrow onwards, but the main event on that front will likely be retail sales for the month of August after healthy growth in July, and after noting other data prints regarding consumption that at times have painted a strained picture.

Dow Technical analysis, overview, strategies, and levels

A week of gains has favored conformist buy-breakout strategies on the weekly time frame with a ‘bull average’ technical overview, as price works within relatively large bands the moves within it capable of tilting key technical indicators, a few of which are positive with price above all its main weekly moving averages and near the upper end of the band. It won’t take much to tilt a couple more to green in the longer-term time frame, but in all has kept the strategic considerations buy vs. sell when it comes to conformists and contrarians. There are also a couple key indicators positive on the daily time frame but otherwise mostly neutral, and suffering from ongoing price-indicator proximity with the technical overview there ‘cautious consolidation’ but no doubt enjoying positive technical bias.

IG client* and CoT** sentiment for the Dow

CoT speculators aren’t far off heavy buy territory at this stage (though still relatively low in percentage terms when compared to earlier this year), with a reduction in shorts (by 1,168 lots) that was larger than longs (by 136).

IG clients have reached extreme sell territory again following the moves late last week, and fresh shorts will be hoping for a repeat in terms of a pullback in price else face a squeeze.

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.