Dow: Investors cautious of Dow as US CPI approaches

[MongiIG]

Both retail traders and CoT speculators holding an identical majority sell 60% bias.

 

Source: Bloomberg

 

Shares Federal Reserve Central bank Federal Open Market Committee Price index Consumer price index

 Monte Safieddine | Market Analyst, Dubai | Publication date: Monday 11 September 2023 

Light on data late last week, heavy on Fed member speak

There was little to process late last week out of the US in terms of data, with consumer credit showing an ongoing tested consumer, with month-on-month (m/m) growth of $10.4 billion for July, which was a miss compared to its previous revised lower figure of $14 billion.

However, while it lacked data, there was plenty of central bank speak to digest, with the Federal Reserve Bank's (Fed) Williams stating that current monetary policy is "in a good place" and dependent on the data. Logan mentioned that skipping in September "does not imply stopping," Goolsbee emphasized that avoiding a recession while bringing inflation down is "not a guarantee," even if it's possible. Both Bowman and Barr also commented on digital currencies.

Coin-toss market pricing

Stocks experienced a downward finish for the week, with technology stocks slightly underperforming. In the bond market, Treasury yields saw modest gains, and their real value remained relatively stable. Breakeven inflation rates showed an upward trend, while market pricing, as indicated by CME's FedWatch, indicated that the likelihood of another rate hike by the Federal Reserve was approximately a 50-50 proposition.

However, this rate hike was not anticipated to occur in the upcoming month but rather in November or December, with the possibility of a rate cut being considered for June of the following year.

The week ahead

As for the week ahead, a very light start with little on offer today and the National Federation of Independent Businesses's (NFIB’s) release tomorrow before it gets far more interesting on Wednesday with the final piece before next week’s Federal Open Market Committee (FOMC) decision.

US Consumer Price Index (CPI) for the month of August is expected to show a far greater month-on-month increase compared to July’s 0.2%, and where the year-on-year reading will rise from 3.2% (‘Nowcasts’ at 0.79% and 3.82%, respectively for August).

Expect pricing to continue to capture some attention with Producer Price Index (PPI) the following day where the readings are far more contained with July at just 0.8% year-on-year headline and 0.3% month-on-month, trade pricing data on Friday where there was month-on-month growth last time around but still heavy negative year-on-year prints (export price index -7.9%, import price index -4.4%).

Shortly thereafter, the preliminary figures are due from the University of Michigan (UoM) where its sentiment reading has been averaging higher since mid-2022 lows but still tested, and consumer inflation expectations above the central bank’s target but far more controlled as of late within the lower 3% handle.

But that’s not all, as aside from the usual weekly readings we’ve got retail sales just as the consumer is expected to get further tested in the final quarter of this year, and auctions with the ten-year tomorrow and the 30-year on Wednesday where focus will be on whether the additional supply will find much-needed demand.

Dow technical analysis, overview, strategies, and levels

We're currently in a generally cautious phase when it comes to equities (and risk appetite in general). For this index, its previous 1st Support level managed to hold on the weekly time frame but lacked a trigger for cautious conformist buys.

The gains late last week on the daily time frame failed to reach Thursday's 1st Resistance, even when factoring in Friday's small follow-through. When looking at the key technical indicators, the overview remains 'cautious consolidation' in both weekly and daily time frames.

 

Source: DailyFX

IG client* and CoT** sentiment for the Dow

CoT speculators are still majority sell here but have raised it to 60% on a larger drop in longs (2,980 lots) than shorts (1,256), while retail trader bias has fallen to 60% from 64% week-on-week. CoT speculators are still majority sell here but have raised it to 60% on a larger drop in longs (2,980 lots) than shorts (1,256), while retail trader bias has fallen to 60% from 64% week-on-week.

 

Source: DailyFX

Dow chart with retail and institutional sentiment

 

Source: TradingView

 

• _{* 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.}

 

 

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