Market update: Dow futures fail to hold onto gains despite weekend news

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Financial sector woes might have started with Silicon Valley Bank but attention moved to regional banks digesting sizable outflows to larger banks seen as too big to fail. Thereafter, the already troubled Credit Suisse bought out by domestic rival UBS for about SFr 3bn ($3.23bn) in a deal that includes a liquidity line from the Swiss National Bank (SNB) to the tune of 100bn Swiss francs and a SFr 9bn guarantee from the government should losses on defined assets breach a threshold.

But that’s not all that was announced, with a coordinated global central bank seven-day dollar loan swaps now available daily instead of weekly for their respective banks until at least the end of next month.

On the US regional banking front there was First Republic Bank suffering a credit ratings downgrade from S&P Global warning yet another is possible, even after the $30bn infusion from major US banks prior, with talk over the weekend from some lawmakers of an increase in the FDIC insurance cap from the current $250,000.

As for the data released late last week, UoM’s (University of Michigan) preliminary consumer sentiment reading dropped to 63.4 and was a clear miss with 12-month inflation expectations dropping from 4.1% to 3.8%, and the five-year by a notch to 2.8%. Trade pricing data released the day before showed imports dropping 0.1% m/m (month-on-month) and the y/y (year-on-year) at -1.1%, exports up 0.2% and down 0.8% respectively.

Industrial production for February lacked growth, capacity utilization stuck at 78%, and Philly Fed manufacturing hardly improved and a clear miss at -23.2. Housing data last Thursday showed building permits and housing starts enjoying strong gains up 13.8% and 9.8% respectively defying forecasts of slight contraction. Employment data showed initial claims best estimates with a sub-200K reading opposite the scare last week, continuous claims edge back down beneath 1.7m.

As for the week ahead, the big one is this Wednesday with the Federal Open Market Committee (FOMC), market pricing (Refinitiv) shifting back and forth on whether there will be a 25bp (basis point) rate increase.

However, the majority is still on a peak 4.75-5% range before a rate cut in June (it’s usually six months between last rate increase and first-rate cut). In what is its first test this rate hiking cycle in terms of inflation vs. financial stability offering insights into how it may react over the coming weeks and months should something else break between now and then, and also includes their projections.

In terms of economic data out of the US, it’s relatively quiet this week with housing sales data today and Thursday, the weekly MBA mortgage applications sandwiched in between, and durables on Friday. Inventory data as always will be released tomorrow and the day after for API and EIA respectively, oil traders hoping it won’t involve any sizable adjustments. Preliminary PMIs globally will be released on Friday.

Dow Technical analysis, overview, strategies, and levels

From a weekly standpoint, the moves were within its previous weekly 1st levels and meant a lack of a play for both weekly conformist and contrarian strategies. Zooming into the daily time frame and both Thursday's 1st Support and Resistance levels managed to hold, one apiece for daily contrarian buy-after-reversals and conformist sell-after-significant reversals respectively and one each failing (breakouts) under its daily bear average technical overview where more of its technical boxes are red and prices beneath all its main daily moving averages.

IG client* and CoT** sentiment for the Dow

As for sentiment, CoT speculators are still heavy sell but have dropped to 59% (longs +784 lots, shorts -866) from 62% prior. Retail trader bias is an opposite majority buy, and unchanged since the start of last week at 62%.

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 positions as of March 7, inner circle as of February 28.