Dow ends week little changed after stellar NFP report

Several items out of the US labour market to digest, with last Friday’s Non-Farm Payrolls (NFP) for January out of the Bureau of Labor Statistics (BLS) taking everyone by surprise with a very strong 517K reading that was more than double forecasts (attributed in large part to data revisions via seasonal adjustments).

The unemployment rate dropped to a 53-year low of 3.4% instead of rising to 3.6% (though the U6 underemployment rate which includes discouraged and underemployed rose to 6.6%), labour force participation increased slightly to 62.4%, and so too the employment-population ratio to 60.2%.

Wage growth as always was in focus (and this after the fourth quarter unit labour cost released the day before rose 1.1% instead of 2% last time around, and employment cost for the same period earlier last week at 1%), and average hourly earnings showed a month-on-month (m/m) increase of 0.3% in line with expectations but its year-on-year (y/y) reading notably dropping to 4.4%. The household survey registered big gains only due to new population estimates.

We got more out of ISM (Institute for Supply Management), this time for the services sector which went back into expansion with a healthy and surprising 55.2, unlike last Wednesday’s manufacturing reading which worsened further into contraction. S&P Global’s prints also improved but remained sub-50 at 46.8. But it wasn’t just the data that was in focus, as we got earnings from the last of Big Tech late last week, and where (Dow 30 component) Apple missed nearly across the board, similar story for Alphabet, but Amazon beating on revenue and advertising.

In all, the results couldn’t unseat the tech-heavy Nasdaq 100 from outperforming once more. Over in the bond market, Treasury yields clawed back territory lost earlier in the week to finish mostly unchanged (and gapping higher this morning), in real terms higher, breakeven inflation rates slightly lower, and market pricing (CME’s FedWatch) for a 25bp (basis point) rate hike out of the US Federal Reserve (Fed) this March but post-NFP majority another in their May meeting.

As for the week ahead, it’s a far quieter one, especially when compared with last week’s impacting items. There are the usual weekly items out of the US such as energy inventory data out of API (American Petroleum Institute) and EIA (Energy Information Administration), mortgage applications out of MBA (Mortgage Bankers Association) on Wednesday, and Thursday’s unemployment claims, with a few items of interest tomorrow including consumer credit for December and NFIB’s (National Federation of Independent Business) business optimism.

But otherwise, we’ll have to wait until Friday for preliminary figures out of UoM (University of Michigan) with consumer sentiment recovering partially off last June’s lows and inflation expectations for both 12-month and five-year horizons that have dropped significantly from their highs around the same period last year. It’ll also be far quieter on the US earnings front, (Dow 30 component) Disney’s figures on offer this Wednesday and (non-component) Pepsi the day after that.

Central bank speak will be plentiful and includes Fed Chairman Powell tomorrow.

Dow Technical analysis, overview, strategies, and levels

A relatively sedate week for this index, with prices failing to reach their previous weekly levels lacking a play for both conformist and contrarian strategies, while on the daily time frame, Thursday's daily 1st Resistance level managed to hold aiding conformist sell-after-reversals and contrarian buy-breakouts failing, the technical narrative in both time frames still relatively positive with prices managing to hold above all its main moving averages but otherwise neutral technical boxes and ADX (Average Directional Movement Index) readings.

IG client* and CoT** sentiment for the Dow

In sentiment, it's still majority sell amongst retail traders, but has dropped out of heavy short to 63% from last Monday’s 67%. The CoT report has been delayed and as a result the institutional sentiment figures are from the week before, though it’s been majority sell since January of last year.

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 today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, and due to the lack of a release last Friday means the outer circle is from the week before, inner circle from the report prior.