Market update: Dow futures slightly lower as focus is on tomorrow’s CPI release

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There wasn’t much to go on out of the US late last week, central bank speak pointing to ongoing hawkishness out of the US Federal Reserve (Fed) with its Chairman Powell reaffirming his stance on inflation and saying they “are strongly committed to this project”, cautioning “strongly against prematurely loosening policy”, and won’t “take into consideration external political considerations”. The Fed’s Waller voiced his favour for “another significant increase in the policy rate”, Bullard “leaning more strongly” towards 75, and George wanted “steadiness and purposefulness over speed”.

Market expectations for next week’s Fed meeting are getting closer to fully pricing in a 75bp (basis point) rate hike, but still roughly a coin toss on whether its peak will get into the 4-4.25% range early next year. As for US economic data, a notable reduction in the growth of consumer credit for the month of July up $23.8 billion from $39 billion in its previous reading though still above pre-pandemic averages, wholesale inventories up a smaller than expected 0.6%, and unemployment claims besting estimates four weeks in a row, it's latest dropping to 222K.

Key US indices finished the week in the green undoing losses from the week before, bond market yields rose even if it was more pronounced on the shorter end putting yield curve inversions into slight retreat, and breakeven inflation rates were in for a consistent drop.

As for the week ahead, there are plenty of items out of the US, and the big one is tomorrow’s CPI (Consumer Price Index) figures where expectations are we’ll see a drop in the y/y (year-on-year) reading from 8.5% to 8.1% for the month of August, and an m/m (month-on-month) decline of 0.1%, and for its core which excludes food and energy to experience increases of 6% and 0.3% respectively. Producer prices will be released on Wednesday where larger readings are expected for the y/y at 8.9% and identical m/m -0.1%, and its core at 7.4% and 0.3% respectively.

There’s export and import pricing data on Thursday, but might start to get overshadowed by retail sales even if m/m might not offer any change, and manufacturing data from both Empire and Philly Fed. On Friday, we’ll get preliminary readings from UoM (University of Michigan) regarding not just consumer sentiment but also inflation expectations.

Dow Technical analysis, overview, strategies, and levels

Prices finished close to their previous weekly 1st Resistance level with little on offer for both conformist and contrarian strategies, and the gains late last week meant conformist strategies failed on the daily with sell-breakouts off Thursday's 1st Support level not getting any follow-through and Friday's gains going past its 2nd Resistance level aiding contrarian buy-breakouts, tilting a couple of technical boxes in the process and a positive DMI (Directional Movement Index) cross on the verge of occurring there.

IG client* and CoT** sentiment for the Dow

CoT speculators have raised their majority short bias from slight sell 51% to 59% on a drop in longs by 1,747 lots and a simultaneous increase in shorts by 2,347, and retail trader bias has shifted from majority buy 57% at the start of last week to 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 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.