Where we are: Dow futures are currently trading at 49866, up 502 points or 1.02% on the day, having traded in a 49354-50060 range overnight. The cash Dow Jones closed yesterday near 49298 and is indicating a substantial gap-up open this morning. The Dow is outperforming broader market indices, currently showing greater gains than the S&P and Nasdaq futures.
What’s driving it: The rally is primarily driven by growing optimism surrounding a potential ceasefire between the US and Iran, leading to a sharp drop in oil prices and a broad risk-on sentiment. Domestically, the 10Y real yield rose by 4bp yesterday, creating a gold headwind. Also contributing to the positive momentum are strong earnings reports, particularly from AI-related companies like AMD and Super Micro Computer, bolstering investor confidence in the tech sector and its wider impact on the Dow Jones Industrial Average.
- The 10-year Breakeven Inflation rate fell by 3bp, reflecting easing inflation concerns.
- China’s call for a comprehensive ceasefire appears to be a major catalyst.
- Speculator positioning in Dow futures remains modestly short, at the 56th percentile, leaving room for short covering to amplify the rally.
NY session focus: Keep an eye on the 08:15 ET release of the ADP Non-Farm Employment Change, which is expected to show an increase to 118K from the previous 62K. A stronger-than-expected print could reinforce the risk-on move and push Dow futures towards the 50000 level. Conversely, a weaker number could trigger some profit-taking. Key levels to watch are resistance at 50000 and support around 49350. The working trade is long tech exposure within the Dow, while the at-risk trade is short oil-sensitive components. The pain trade would be a hawkish surprise from Bowman speech shifting expectations towards tighter monetary policy.