Dow suffers slight retreat with more impacting data ahead

Sign up for IG's Daily and Weekly Market Report to receive this information and more, in an elaborate and comprehensive report recounting the forex majors, commodities and indices before the European open.

There were plenty of items out of the US to digest with job openings still above 11m signifying an ongoing tight labour market. ISM's (Institute for Supply Management) manufacturing and PMI (Purchasing Managers Index) bested estimates with an expansionary 56.1 reading as total vehicle sales dropped below 13 million, and mortgage applications contracted again albeit by a (relatively) small -2.3%.

The Federal Reserve’s (Fed) Beige Book cited the usual issues regarding a tight labour market, supply chains, and inflation. Though firms are facing consumer pushback on price increases, with 'slight or modest' economic growth over the past couple of months or so denting the outlook a bit should the narrative persist.

Yields have spent seven years flirting and at times entering negative territory, though finishing well in the green. This time was no exception s yields in the bond market finished the session higher.

Market pricing of Fed rate hikes hasn't moved much as of late but the bond market continues to price a central bank that is keeping breakeven inflation expectations relatively anchored, even though the five-year and ten-year were in for slight increases yesterday following the data.

Fed hawk Bullard from the central bank spoke of inflation 'straining' the central bank's credibility. Non-voter Daly wants to get to 2.5% 'as quickly as we can' though uncertainty remains about 50bp hikes beyond July. FOMC voter Mester is expected to speak tonight, and Vice-Chair Brainard tomorrow.

While unemployment claims and factory orders will be released tonight and services PMI readings tomorrow, the real anticipation revolves arount Friday's Non-Farm Payrolls. While there is hope that recent announcements of hiring slowdowns/pause/layoffs won't significantly dent May's figure, Non-Farm Payrolls are aiming for about 100K less than the previous 428K reading.

Dow Technical analysis, overview, strategies, and levels

The weekly time frame’s technical overview remains unchanged as the bear trend has been stalling heavily. While the daily time frame shared the same overview for some time, the partial lift off the lows in late May tilted a few key technical indicators in the shorter-term time frame. It has still been moving within a lower average (and hence a ‘bear average’ classification isn’t far off), and it won’t take much to shift the easy-to-tilt technical indicators on the daily back into the bearish camp.

IG client* and CoT** sentiment for the Dow

As for sentiment amongst retail traders, they held majority buy bias when prices were in for a decline in April and May. Retail traders shifted to majority sell when prices partially recovered off of the lows but with consecutive price declines, it has enticed buys into entering and shorts into closing out, and hence it's another shift from slight sell 52% yesterday back into slight buy, and at 54% as of this morning.

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.