Where we are: Dow futures are currently down roughly 250 points, trading near 39,250. Overnight, the index has largely traded sideways after yesterday’s late rally, but now trades closer to session lows following the CNBC wholesale inflation print. The DJIA closed yesterday near 39,500, and a breach of 39,200 would open the door to further downside.
What’s driving it: Rising inflationary pressures, evidenced by the higher-than-expected PPI figures, are weighing on the Dow. The US 2Y yield continues to climb, now at 3.95%, reflecting a hawkish repricing in the front end of the curve. This comes as the market anticipates the Fed Chair nomination vote later today, with Kevin Warsh expected to pass, which could signal a shift towards a more hawkish monetary policy stance and further pressure risk assets.
- Wholesale inflation jumped 6% in April on an annual basis.
- The 2s10s spread remains inverted at -0.46%, signaling ongoing recession concerns.
- Net non-commercial positioning is modestly short at -677 contracts, leaving room for further downside pressure as inflation fears grip the market.
NY session focus: The key event today is the 08:30 ET PPI release and how the market interprets it. A strong print will likely exacerbate inflation fears and push the Dow lower, while a surprise to the downside may offer a brief respite. All eyes will then be on the Fed Chair Nomination Vote at 14:30 ET. A Warsh nomination will steepen the bear flattener and likely lead to further weakness in the Dow. The trade that’s working is shorting rallies, while the trade at risk is dip buying. The pain trade is a weaker-than-expected PPI print, which could trigger a short squeeze and send the Dow higher.