Market update: Dow futures little changed after fourth consecutive week of gains

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There were first-quarter figures to digest from key financial heavyweights.

1. (Dow 30 component) JPMorgan Chase enjoyed “significant new account opening activity”, record first-quarter revenue that easily bested estimates, strong earnings with a big increase in net interest income and raising forecasts for the latter this year based on expectations of central bank rate cuts resulting in smaller payouts to depositors.
2. Wells Fargo in comparison a less clear beat but besting nonetheless with net interest income up 30% compared to a year ago (but down from Q4) and setting aside more funds for potential losses in commercial real estate, auto loans and credit cards.
3. Citigroup was also above forecasts with deposits dropping quarter-on-quarter despite sizable inflows at the end after the regional bank turmoil, it too setting aside more for potential loan losses.
4. BlackRock a beat with total assets under management higher q/q but lower than Q1 ’22.

There was more pricing data out of the US to process late last week after CPI (Consumer Price Index) proved to be a bit stickier, and it showed producer prices for March enjoying notable drops in the year-on-year (y/y) reading to 2.7% with month-on-month (m/m).

Contraction for both headline and core, trade pricing data all with negative prints both m/m and y/y for both imports and exports and where all four were lower (i.e., better) than forecasts, but preliminary consumer inflation expectations for this month out of UoM (University of Michigan) rising sizably to 4.6% for the 12-month even if unchanged at 2.9% for the five-year.

There were other items on offer including retail sales (-1% m/m for March, core -0.8%), weekly claims (initial once more above 200K and worse than estimates while continuous dropped slightly to 1.81m) and industrial production (with 0.4% growth).

In central bank speak, there were hawkish comments from the Federal Reserve’s Waller on not having “made much progress” on bringing inflation back down to their 2% target with “sideways” movement in the underlying and wanting further tightening that’ll “need to remain tight for a substantial period of time, and longer than markets anticipate.”

Market pricing for future rate hikes out of the US Federal Reserve (Refinitiv) following the comments are more heavily in favour of one last 25bp (basis point) increase though still anticipating rate cuts later this year.

As for the week ahead, it’s relatively less impactful when it comes to US economic data compared to last week, though the sum of which will be noted if it points to weakness in further regions and sectors at a time when markets are conscious of rising recessionary risks.

Housing data will be released throughout most of the week starting with NAHB’s housing market index which has managed to improve off lows suffered at the end of last year though still, sub-50 signifying a negative outlook.

Building permits and housing starts for March on Tuesday looking more favourable after a strong beat last time around and the weekly mortgage applications will be released on Wednesday after a positive figure prior, and existing home sales on Thursday where hopes are it’ll stay above lows seen at the start of the year (which were similar to tested readings after the pandemic started).

NY and Philly Fed manufacturing indices will be on offer this week with the former later today and the latter on Thursday, and both are expected to suffer ongoing negative prints even if improving from the numbers we saw back in March. Global preliminary manufacturing and services PMIs (Purchasing Managers’ Index) for this month will be released on Friday, and the expectation for the US is that the former will remain sub-50 while the latter worsens but stays in expansionary territory.

And then there’s earnings, more from financials including Bank of American and (Dow 30 component) Goldman Sachs on Tuesday, the FAANG+MT with Netflix tomorrow and Tesla on Wednesday. Fiscal policy will also take some attention as attempts resume to raise the debt ceiling with House Speaker McCarthy speaking today.

Dow Technical analysis, overview, strategies, and levels

We failed to get a play at its previous weekly 1st Resistance level, and it was a struggle getting Thursday's daily 1st Resistance level to hold at times offering a bit for conformist sell-after-significant-reversals but suffering a stop-out with the initial offering for contrarian buy-breakouts on the initial move higher on Friday.

The technical overviews in both time frames aren’t far off shifting to a bull average from the current consolidatory with heavy positive technical bias.

IG client* and CoT** sentiment for the Dow

Dow chart with retail and institutional sentiment

As for sentiment, CoT speculators reduced their heavy sell bias from 73% to 69% (longs +1,554 lots, shorts +564). We’ve also seen a pullback in majority short sentiment for other key US indices: S&P 500 from 75% to 71%, Russell 2000 from 70% to 65%, and the tech-heavy Nasdaq 100 from 60% to 51% needing a slight nudge to shift to the middle.

Retail traders start off the week still majority short, though now in heavy sell territory at 66% from 64% last Monday.

*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 last Monday morning, April 10th.
**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.