Dow: Futures point slightly higher after a week of decent gains

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US economic data: pricing and consumer inflation expectations

In terms of US economic data, plenty was on the pricing front last Friday. PCE (Personal Consumption Expenditures) readings for the month of May showed a y/y (year-on-year) increase of 3.8% for its headline dropping from 4.3%. The core growth was a notch lower at 4.6%.

As for m/m (month-on-month), it was at 0.1% and 0.3% respectively. Revised figures for June out of UoM (University of Michigan) showed consumer inflation expectations for the 12-month and five-year stick at 3.3% and 3% respectively.

Additionally, its sentiment reading was revised higher from 63.9 to 64.4.

Strong economic indicators and PMI for June

Personal spending and income for May both showed growth, with the former a miss at 0.1% and the latter above forecasts at 0.4%. Chicago PMI (Purchasing Managers’ Index) for June stuck in contraction for its tenth consecutive reading with an increase to 41.5, a clear miss.

The day before, final first quarter GDP (Gross Domestic Product) showed growth far stronger than expected of 2% (Atlanta Fed’s GDPNow estimate at 2.2% for the second quarter). Its price index was a notch lower at 4.1%.

Weekly stock market performance and Fed's stance on rate hikes

Stocks were in for a weekly positive finish with tech underperforming then but the winner for both the month of June and the second quarter. Bank stocks late last week welcomed Wednesday’s Federal Reserve (Fed) release of its annual stress test, with plans from most of the financial heavyweights to raise quarterly dividends.

Central bank talk remained hawkish last week. However, market pricing (CME’s FedWatch) is yet to shift to a majority on consecutive rate hikes. It's opting instead for a healthier (but not fully priced in) final 25bp (basis point) increase out of the Fed in July and a significant minority on another hike of the same magnitude in November.

Anticipated economic events for the week ahead

For the week ahead, we’ve got final manufacturing PMIs on offer today for the month of June. The story has been one of ongoing contraction. No exception for the US, with a 47.2 print for the sector anticipated when it comes to the closely watched ISM (Institute for Supply Management) readings.

It's important to note its new orders component after it suffered heavily last time around (42.6). Tomorrow’s holiday will mean both stock and bond markets will be closed (and finish early today). This will push out data a bit, with the weekly energy inventory readings on Wednesday and Thursday from API and EIA respectively.

Upcoming labour market statistics and FOMC minutes

Minutes from the latest FOMC (Federal Open Market Committee) meeting will be on Wednesday night. There will be services PMIs on Thursday where it has remained in expansionary territory for S&P Global but only just for ISM. The latter’s employment component fell into contraction for May. It’ll be a day where the labour market is expected to take plenty of attention.

ADP’s non-farm estimate and Challenger’s job cuts for the month of June will be reported, along with job openings for May that managed to cross back above 10m in April. The weekly claims, which were significantly lower (i.e., better) than anticipated last time around, will also be published.

Non-farm payrolls and implications for future tightening

Focus on the labour market will increase thereafter with Friday’s Non-Farm Payrolls. Forecasts suggest we’ll see a 200K+ increase for June. The unemployment rate is expected to remain at or near 3.7%, and so too m/m average earnings growth of 0.3%.

Any change to the current narrative could have significant implications in terms of future tightening. This is due to Fed Chairman Powell’s belief that “there’s more restriction coming” due to “a very strong labour market”.

Dow technical analysis, overview, strategies, and levels

Price-indicator proximity means a technical overview shift won't require as much in both weekly and daily time frames. Given the ease with which it can (and generally has) shifted to positive means the overview is a bit blurred between consolidatory (with positive technical bias) and 'bull average'.

Contrarian buy-breakout strategies outperformed in both time frames thanks to the gains late last week. This stopped out even daily cautious conformist buy-after-significant-reversals, with most of the key daily technical indicators tilting from neutral to positive.

By Friday’s close, component performance put Apple (market cap now above $3tn) and Walmart on top. On the other end, Nike suffered by a margin following a rare earnings miss.

IG client* and CoT** sentiment for the Dow

As for sentiment, the increase in price has translated naturally into a rise in sell bias amongst retail traders, jumping from 55% at the start of last week to a heavy sell 72%.

For CoT speculators, there’s hardly been any change rising a notch higher into heavy sell territory from 65% to 66%, with long positions up 1,704 lots outdone by a larger increase in shorts by 4,767.

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.}