Dow 30: futures little changed ahead of plenty of data this week

Record highs, cautious Fed members, and rate cut likelihoods

Last Friday, the United States offered little new information, with market participants still processing the significant gains made by large-cap equity indices on Thursday, which reached record highs, amidst numerous central bank officials delivering speeches in the interim. The Federal Reserve's (Fed) Waller reiterated his viewpoint that "there is no rush to begin cutting interest rates to normalize monetary policy," expressing a desire for "at least another couple more months of inflation data" to decide "whether January was a speed bump or a pothole." Cook emphasized the need for "greater confidence that inflation is converging to 2% before beginning to cut the policy rate," Jefferson anticipated rate cuts later in the year, and Harker cautioned against expecting rate cuts "right now and right away."

Regarding Treasury yields, they ended the week mostly unchanged, with a slight decrease at the longer end, thus lowering them in real terms. Market predictions, notably the CME's FedWatch, almost fully anticipate the Fed maintaining its current rates in March, strongly suggesting no change in May, and, by a majority, forecasting a cut in June.

Week ahead: pricing, PMIs, and a potential partial government shutdown

In the coming week, a focus will be on US housing data, beginning with the release of new home sales for January later today, which have been near pre-pandemic averages. Tomorrow, housing price data for December from both the FHFA and S&P/CS will be released, with recent figures showing positive trends. Weekly mortgage applications, following last week's decline, will be reported on Wednesday, and pending home sales for the first month of this year will be released on Thursday, following notable growth in its previous report.

However, these housing market indicators, whether individually or collectively, are not expected to have as significant an impact as the pricing data due this Thursday with the Personal Consumption Expenditures (PCE) price index. January's expectations include a headline year-on-year increase of 2.4%, down from 2.6% previously, with the core rate expected to decrease from 2.9% to 2.8%. Month-on-month growth rates of 0.3% and 0.4% are anticipated, respectively.

Manufacturing PMIs (Purchasing Managers' Index) are scheduled for Friday, with both the Institute for Supply Management (ISM) and S&P Global releasing their findings. However, the former has not yet emerged from contraction, unlike the latter, which showed improvement to 51.5 in its preliminary reading last Thursday. Preliminary GDP (Gross Domestic Product) figures for the last quarter of the previous year will be released on Wednesday, although there is currently no significant concern over U.S. growth (with the Atlanta Fed's GDPNow estimate for this quarter at a healthy 2.9%).

In terms of consumer sentiment, the Conference Board's (CB) reading will be available tomorrow, while the revised figures from the University of Michigan (UoM) will be released on Friday. We should also not overlook the deadline for the partial government shutdown this Friday.

Dow technical analysis, overview, strategies, and levels

We got a cross and close above its previous weekly 1st Resistance level, plenty on offer for conformist buy-breakout strategies, but for relatively limited profit-taking in terms of time, while contrarian sell-after-reversals got stopped out, with the key technical indicators remaining bullish on the weekly time frame and a 'bull average' technical overview. It's an identical overview for the daily time frame, where late last week price easily breached Thursday's 1st and 2nd levels, thereafter breaching 39K and remaining above it by the close.

IG client* and CoT** sentiment for the Dow

CoT speculators’ heavy buy bias has dropped a few notches to 69% and is still considered heavy buy territory (longs -935 lots, shorts +2,668), and there’s still a decent margin for longs initiated at lower prices to unwind with a profit. IG clients are extreme sell but down a notch to 79% week-on-week, with the caution shorting into price gains persisting.

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 the start of this week 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.}