Where we are: The Dow Jones is struggling to hold gains this morning, trading around 39,800 in futures. This is slightly below yesterday’s New York close and within the overnight range. Technically, the index remains below its recent highs, hinting at continued selling pressure.
What’s driving it: The primary driver is the persistent pressure from rising US Treasury yields, particularly the 10-year which sits at 4.61%, and the corresponding strength in the US dollar, with the broad index at 119.2825. The rise in real yields (10Y TIPS at 2.13%) is weighing on risk assets generally, presenting a headwind for equities. While Target and Lowe’s beat earnings expectations, the broader market sentiment remains cautious amid concerns about the Fed’s next move and the overall economic outlook.
- US 10Y Real Yields (TIPS) are up 3bp d/d, signaling that the market expects rates to stay higher for longer.
- Net non-commercial positioning in the Dow Jones is moderately short, but not at an extreme (-3,562 contracts, 37th %ile), limiting immediate squeeze potential.
- The 2s10s spread remains unchanged at 0.54%, suggesting no significant change in the yield curve and its implications for growth expectations.
NY session focus: All eyes are on the FOMC Meeting Minutes release at 14:00 ET. Traders will be parsing the details for clues about the Fed’s thinking on inflation and the path of interest rates. A hawkish tilt could exacerbate the pressure on the Dow, potentially pushing it towards the 39,500 level. Conversely, a dovish surprise might offer some temporary relief, targeting a retest of 40,000. The trade that’s working remains shorting rallies. The trade at risk is chasing downside momentum too aggressively ahead of the Minutes. The pain trade for the Dow would be a sharp rally fueled by unexpectedly dovish signals from the Fed, catching short positions off guard.