Market update: Dow futures point higher as markets digest banking stress

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Another week, another bank, this time Deutsche Bank with its share price in retreat triggered by a rise in its credit default swaps, its AT1 (Additional Tier-1) bonds not spared, and policymakers once more trying to assure depositors.

German Chancellor Olaf pointed out that there is “no reason to worry” over the “very profitable bank”. We heard similar comments from other key leaders in the region including the European Central Bank’s (ECB) Lagarde on the banking sector’s resilience “because it has strong capital and liquidity positions” with a “toolkit fully equipped to provide liquidity to the euro financial system if needed”.

Over in the US, it was US Treasury Secretary Yellen saying they’ve got the “tools to act quickly to prevent contagion” and a Financial Stability Oversight Council meeting on Friday that was unscheduled in agreement that the US banking system is “sound and resilient”.

Outflows from smaller banks in the US continued with larger banks beneficiaries, but a sizable difference making its way into money markets as it remains the preferred destination over high-yield and most equity sectors (Refinitiv’s Lipper).

Use of the Federal Reserve’s (Fed) discount window remained high and rose for its Bank Term Funding Program, and so too did a spike in dollar liquidity via its FIMA repo facility.

In central bank speak, there was the Fed’s Bullard saying a continued “appropriate macroprudential policy can contain financial stress, while appropriate monetary policy can continue to put downward pressure on inflation”, an ongoing two-tiered approach.

In terms of US economic data to digest late last week, durables for February missed and contracted by 1% after a sizable decline last time around for its headline reading, while preliminary PMIs out of S&P Global for this month were a clear beat at 49.3 for manufacturing and a stronger print for services that was in expansionary territory at 53.8.

Key indices finished the week higher with outperformance for the tech-heavy Nasdaq 100. As for Treasury yields, they finished the week mostly lower with gaps higher on the shorter end of the curve, notably lower in real terms, breakeven inflation rates slightly higher, and market pricing (Refinitiv) showing we’re at the peak range with rate cuts potentially from September onwards.

As for the week ahead, it’s relatively quiet in terms of impacting data out of the US until we get to Friday’s PCE (Personal Consumption Expenditures), where expectations are its price index will register month-on-month (m/m) growth of 0.2% overall and year-on-year (y/y) at 5.3% from 5.4% in its previous January reading, and its closely watched core to rise 0.4% with a y/y drop from 4.7% to 4.4%.

Personal spending, income, and revised figures out of UoM (University of Michigan) will also be released that day.

Leading up to it we’ve got more housing data with pricing tomorrow, and both pending home sales and the weekly mortgage applications on Wednesday. Final GDP (Gross Domestic Product) for the fourth quarter will be released on Thursday, though even if a miss is unlikely to be of a concern in the current phase given the relatively strong 2%+ print (and the Atlanta Fed’s GDPNow estimate showing a better 3.2% for this quarter).

Dow Technical analysis, overview, strategies, and levels

Its previous weekly 1st Resistance level managed to hold, conformist sell-after-reversals winning out on the move back down with less on offer for contrarian buy-breakouts. On the daily time frame, prices went past Thursday's 1st Resistance level but not via reversal on the first move higher past its stop loss (S/L), the pullback triggering conformist sell-after-reversals that enjoyed far more than contrarian buy-breakouts (overview also consolidatory on the daily time frame but showing more negative technical bias).

IG client* and CoT** sentiment for the Dow

As for sentiment, retail traders starting the week off in the middle from last Monday's majority buy 62%, and CoT speculators pushing further into sell territory from 67% to 71% (longs -2,296, shorts -1,262). Institutional sentiment for the remaining US indices shows they are also majority short there: S&P 500 at 67%, Russell 2000 at 68%, and the Nasdaq 100 closest to the middle at 52%.

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.