Dow futures edge higher building on gains from Friday’s NFP report

We already knew the labour market was likely to show weakening growth readings given central bank tightening, and its relative resilience is a sticking point in key outlooks for this year making it a condition for market forecasts to have a chance of holding.

That meant last Friday’s Non-Farm Payrolls (NFP) out of the Bureau of Labor Statistics (BLS) was the centre of attention, and the reading showed growth of 223K for the month of December that bested estimates once more but involved lower revisions on prior readings.

Adjustments from the BLS for the household survey resulted in a massive 717K gain sizably reducing but nowhere near eliminating the divergence between the two surveys.

Other key items included the unemployment rate dropping to 3.5%, the underemployment rate at its lowest of 6.5%, the labour force participation rate up at 62.3%, so too employment-population ratio to 60.1%, and (crucially) wage growth slowing month-on-month (m/m) to 0.3% with its previous revised lower to 0.4% seen as a positive for the US Federal Reserve (Fed) with a year-on-year (y/y) reading well below estimates dropping to 4.6%.

Employment data released the day before also painted a decent picture with Challenger’s job cuts showing a drop in layoffs for December, the weekly initial claims at a three-month low of 204K, continuing claims falling for a change after consecutive weekly increases, and the day before that was job openings for the month of November also stronger than expected at 10.45m.

Services data also took some attention, with S&P’s still in contraction at 45 even if besting estimates, and the closely watched ISM (Institute for Supply Management) joining it by exiting expansionary territory for the first time since June of 2020, falling from 56.5 to 49.6, its employment index also sub-50 and worse than forecasts at 49.8, the biggest surprise new orders from 56 to 45.2, and prices paid still expansionary but a miss at 67.6.

Stocks were in for a decent risk-on move on Friday helping key indices finish the week in the green, and over in the bond market saw Treasury yields finish the week lower, so too in real terms, with market pricing (CME’s FedWatch) still on for a 25bp (basis point) hike in the Fed’s February meeting with an ongoing and diminishing minority venturing into 50bp territory. Central bank speak remained hawkish even after the report.

As for the week ahead, the first standout is this Thursday’s US Consumer Price Index (CPI) readings for the month of December, where hopes are it’ll be another data point of weaker m/m price pressures, and expectations it won’t change overall and rise 0.3% at its core, and the y/y headline dropping from 7.1% to 6.5%.

Expect pricing to take some attention on Friday with preliminary consumer inflation expectations on Friday after the noticeable drop in its December 12-month figure as well as trade pricing data, before focus shifts to earnings with financial heavyweights like JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup.

Otherwise, it’s relatively light in terms of the US economic calendar prior, with consumer credit tonight for the month of November in what have been figures averaging higher than pre-pandemic levels, NFIB’s small business index tomorrow where it has held steady at current levels for a few months or so, and the usual weekly items out of API and EIA (energy inventory data), MBA (mortgage applications), and the Department of Labor (unemployment claims).

Dow Technical analysis, overview, strategies, and levels

We failed to get a play on the weekly time frame with the moves within its previous 1st levels, while the daily time frame saw Thursday's 1st Support level hold aiding conformist buy-on-reversals.

The overview there is also consolidation but showing more positive technical bias as of Friday's close with a positive DMI (Directional Movement Index) cross and prices above all its main moving averages in the shorter-term time frame, but conformist sell-on-reversals off the 1st Resistance level getting stopped out on Friday's post-NFP risk-on moves.

IG client* and CoT** sentiment for the Dow

As for sentiment, it's still majority sell amongst CoT speculators and still at 60% (longs +887, shorts +811), while retail trader sell bias has risen from 61% at the start of last week to a heavy 67% at the start of this week.

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, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.