Dow 30: short-term struggles fail to shift its long-term overview

Weak labor data, equity indices in slight retreat, and a Fed rate cut still anticipated in June

It was about digesting the US labour market late last week: (1) Non-Farm Payrolls for the month of February showed growth of 275K, besting the roughly 200K expectations, though it came with sizeable revisions lower; (2) the unemployment rate rose from 3.7% to 3.9%, with the U6 a notch higher at 7.3% (household survey decline of 184K as the divergence between it and the establishment survey worsens); (3) wage growth was just 0.1% month-on-month (m/m) compared to the 0.3% forecasts and from a (revised lower) 0.5% in January, and year-on-year (y/y) growth was beneath estimates at 4.3%; and (4) the labour force participation rate held at 62.5%, with the employment-population ratio dropping to 60.1%. There was more Federal Reserve (Fed) member speak to digest after Chairman Powell’s testimony, with Williams on the neutral rate being “still quite low”, and Goolsbee anticipating rates to drop as inflation falls this year.

It was generally a struggle for key US equity indices, even as intraweek highs were made for both the Nasdaq 100 and the S&P 500, and in the FX market, the greenback retreated. Over in the bond market, Treasury yields finished the week lower, and so too in real terms, breakeven inflation rates pulling back, and market pricing (CME’s FedWatch) nearly fully pricing in a hold out of the US Federal Reserve (Fed) when they meet next week, heavily anticipating a hold in their May meeting, and by majority still expecting the first interest rate cut in June.

Week ahead: CPI, PPI, and retail sales

As for the week ahead, the big one is tomorrow’s Consumer Price Index (CPI) readings for the month of February, where the hotter prints for January released in mid-February resulted in a bad session for risk appetite. Expectations are that the y/y figure will hold at 3.1% headline while its core will drop from 3.9%, and for m/m growth of 0.4% and 0.3%, respectively. More pricing data will be released later in the week with the Producer Price Index (PPI) on Thursday, where both headline and especially core m/m growth were above annualised targets even if y/y readings didn’t spell trouble.

Retail sales for the same month will also be available at the same time, and it remains to be seen whether it can shake off January’s contraction with forecasts for growth. Trade pricing will be on Friday, where it too suffered strong m/m prints last time around, and shortly after, the preliminary readings out of UoM (University of Michigan) for consumer sentiment and inflation expectations. Otherwise, there’s the usual weekly items, and for bond traders, the 10-year auction tomorrow and the 30-year the day after, as they continue to note how well demand can keep up with supply amid the ongoing increase in fiscal deficits.

Dow technical analysis, overview, strategies, and levels

Although price reached its previous weekly 1st Support early last week, the key level eventually held. This meant cautious conformist buy, after significant reversals outperformed, compared to contrarian sell-breakouts that had an initial small victory, with the overview here unchanged as 'bull average'. It's mostly neutral technical indicators on the daily time frame even as its overview matches the weekly. The moves late last week, led to net offering more to conformist buy-breakouts; but it wasn't smooth sailing with plenty of swings around Thursday's 1st Resistance, even when combined with Friday’s price action.

IG client* and CoT** sentiment for the Dow

CoT speculators are getting impatient at these levels, with an unwind in heavy buy bias to 67% on a drop in longs, and a simultaneous increase in shorts (longs -2,869 lots, shorts +1,009). IG clients start off the week in heavy sell territory again, and a notch higher at 76%, the pullback in price last Tuesday saw the bias amongst them drop as some shorts got out but reinitiated again on the partial recovery off the lows.

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.}