Dow futures slightly lower ahead of Fed decision later this week

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There was more economic data to digest out of the US late last week. On the pricing front import prices m/m (month-on-month) for August registered a contraction of 1% and export prices also in decline by a larger 1.6% and dragging their respective y/y (year-on-year) to 7.8% and 10.8% from previous 8.7% and 13.1% readings respectively.

Preliminary inflation expectations out of UoM (University of Michigan) for September also dropped for twelve months to 4.6% from 4.8%, and over the five-year horizon to 2.8%, carrying the theme of falling expectations out of the US after the Federal Reserve (Fed) Bank of New York’s figures at the start of last week.

Other notable economic data included retail sales for August besting estimates to grow 0.3% m/m but its core which excludes automobiles dropped by the same amount, and manufacturing data from Empire and Philly Fed was both negative with the latter worsening and the former improving.

But it wasn’t just about the data, with FedEx’s warning late last week (not the first, likely won’t be the last from the corporate sector, and the World Bank’s Chief Economist with his own concerns regarding “generalized stagflation”) solidified the inability for risk appetite to improve from last Tuesday’s plummet, the reaction in the stock market a red finish and causing technical overviews on the shorter-term time frame to remain a bear average. Over in the bond market, yields finished out the week notably higher in large part due to last week’s CPI miss, real yields also notably higher, and inversions mostly worsening.

As for the week ahead, the big one is this Wednesday with the US Federal Open Market Committee’s (FOMC) monetary policy announcement where the latest shows markets fully pricing in a 75bp (basis point) rate hike and a minority venturing into 100bp territory, though it won’t be just about the increase, with its updated projections also on offer, and traders noting the central bank’s reaction to the latest economic data releases.

When it comes to US economic data, it’ll largely be about housing initially with NAHB’s reading tonight, building permits and housing starting tomorrow, and both existing home sales and the weekly mortgage applications out of MBA on Wednesday. Hawkish central bank action usually means dented economic performance, and we’ll get a better idea of what type of damage to expect with preliminary manufacturing and services PMIs (Purchasing Managers Index) for this month released on Friday for plenty, and where plenty globally are estimated to be in sub-50 (and in turn, contracting) territory.

Dow Technical analysis, overview, strategies, and levels

Prices closed beneath their previous weekly 1st Support level and briefly went beneath its previous weekly 2nd, last Tuesday's plummet was the big one that aided conformist sell-breakout strategies for the week, but where follow-through was limiting thereafter with Thursday's conformist sell-breakouts only triggering on Friday's moves lower, otherwise failing to offer a play.

IG client* and CoT** sentiment for the Dow

CoT speculators remain majority short here, the drop in longs by 1,284 lots larger than the 245 lot reduction in shorts and taking the bias to 61%. For the other US indices, they are also short Russell (79%) and S&P (69%), while slight buy Nasdaq (54%). Retail traders start off in majority buy territory, shifting from slight sell 54%.

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 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.