Where we are: The Dow futures currently trade at 49268, up 183 points or 0.37% on the day. The index is consolidating near the upper end of its overnight range (49060-49306) and holding above Friday’s cash close (48942) despite the cash market selloff. A risk bid is emerging, and has held after the EU open.
What’s driving it: The near-term picture rests on US data and rates expectations. The Fed is still perceived as data-dependent, so today’s ISM Services PMI will be key. The relatively flat 2s10s spread suggests the market still expects some monetary easing, yet 10-year breakevens ticked up to 2.5%, hinting at persistent inflation, which may in turn restrain the Fed from easing too aggressively. DXY strength (+0.27% to 98.26) and slightly higher US yields are providing a mixed backdrop, while the 10Y real yield is tailing off.
- The 10-year TIPS yield fell 3bp to 1.91%, a tailwind for gold and risk assets, despite nominal yields rising.
- Dow Jones net non-commercial positioning is modestly short at -1,431 contracts, leaving some room for upside should the data surprise positively.
- European equities are broadly higher, with the DAX leading the charge at +1.31% to 24328, underpinning the risk-on sentiment spilling into US futures.
NY session focus: Focus turns to the 10:00 ET release of ISM Services PMI and JOLTS job openings, as well as New Home Sales. A strong PMI print above 54.0 could fuel hawkish Fed bets, potentially pressuring the Dow, while a weaker number could provide a boost. Watch for a break above 49306 in the futures, opening a path towards the all-time highs. The trade that’s working is long equities, but the risk is a hawkish surprise from the data. The pain trade is a sustained risk-off move triggered by a disappointing data set and rising real yields, which could see the Dow test 49000.