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Dow futures little changed after strong gains following Friday’s NFP

Retail trader bias has shifted from slight long to majority short, CoT speculators edge further into heavy sell territory.

Source: Bloomberg

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The relatively swift passage of the legislation to avert a default put the attention back on other factors. This included crucial labour data last Friday. We got a decent 339K reading for May when it came to Non-Farm Payrolls (NFP) out of the Bureau of Labour Statistics.

This figure was well above 190K expectations and came with upward revisions for March and April.

Highlights and weak points in labour data report

However, there were weak points within the report. The unemployment rate rose from 3.4% to 3.7% and well above estimates due to a drop in the household survey by 310K. Average weekly hours were slightly lower at 34.3. Wage growth was up 0.3% month-on-month (m/m), which was in line with forecasts.

But its previous 0.5% figure was revised lower to 0.4%, and its year-on-year (y/y) print was a slight miss at 4.3%. Other items included the labour force participation rate on hold at 62.6%. The underemployment rate was a notch higher at 6.7% and the employment-population ratio was slightly lower at 60.3%.

Manufacturing PMI shows contraction and deteriorating readings

A few items were on offer the day before. The manufacturing PMI (Purchasing Managers’ Index) for the same month suffered contraction and worsening readings. This was according to both ISM (Institute for Supply Management) at 46.9 and S&P Global at 48.4.

The former’s employment component emerged from contraction, but new orders and prices paid worsened to 42.6 and 44.2 respectively.

Federal Reserve’s Harker on future central bank policy

In central bank speak, there was the Federal Reserve’s (Fed) Harker. Prior to the NFP release, he reiterated hitting “the stop button for one meeting and see how it goes”. He cited being “at the point, or very close to the point” of being in restrictive territory.

Market pricing (Refinitiv) regarding future central bank policy showed via majority staying within the 5-5.25% range. A majority is on a 25bp (basis point) increase in the July meet, only for that increase, should it come to pass, to be undone before the end of this year.

Performance of key indices and the state of the bond market

Key indices finished the week in the green. This time, it was the Dow outperforming and shifting its (recently shifted) daily technical overview. A third consecutive week of gains was noted off the lows for regional banking ETFs. Commercial real estate concerns haven’t subsided just yet.

Over in the bond market, Treasury yields mostly ended lower week-on-week. Friday’s surge failed to undo all of the losses since last Monday.

OPEC+ meeting outcomes and oil prices

In energy, there was the OPEC+ meeting. They extended the voluntary cuts from the end of this year until the end of 2024 with production targets reduced from January. Oil prices gapped higher after a unilateral move from Saudi Arabia to cut one million barrels per day for July. They also left the door open for extensions.

Expected economic events for the week ahead

As for the week ahead, it starts with services PMIs for May. For the US, it is expected to show expansion whether looking at readings out of S&P Global or ISM. Although it's not on the economic calendar, there’s also the matter of new bonds from the US Treasury to refill its TGA with sales expected to start today.

The middle of the week gets lighter with the usual inventory readings out of API (American Petroleum Institute) and EIA (Energy Information Administration). There will be weekly mortgage applications and unemployment claims. These will be sandwiched in between trade and consumer credit.

The end of the week is lightest with the weekly rig count data out of Baker Hughes. Due to the Fed’s pre-meeting blackout period, there won’t be any member speak on offer.

Dow technical analysis, overview, strategies, and levels

For the weekly time frame, it was and still is showing a positive technical bias. Weekly contrarian buy-breakouts got a bit more than conformist sell-after-reversal strategies off its previous weekly 1st Resistance.

However, on the daily time frame, the shift was more notable. Its previous technical overview of a bear average swiftly shifted following Friday’s gains.

Source: IG

IG client* and CoT** sentiment for the Dow

As for sentiment, we’ve got ourselves a shift amongst retail traders thanks to the notable price gains last week. They were slight buy 53% at the start of last week, and start this week off just shy of heavy sell territory.

CoT speculators remain heavy sell and have risen a notch to 68% (long positions -1,168, short positions -2,089), and they remain majority short in the S&P 500 (77%) close to extreme sell levels and the Russell 2000 (67%), with the exception the tech-heavy Nasdaq 100 where they are slight buy (54%).

Source: IG

Dow chart with retail and institutional sentiment

Source: IG

*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.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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