Where we are: Dow futures are currently trading around 39,850, slightly lower, trimming some of yesterday’s rebound. The overnight range has been relatively contained, and we’re holding above the key 39,700 support level, but below yesterday’s New York close near 39,900. The index is struggling to find a clear direction ahead of key data releases, with risk sentiment wavering.
What’s driving it: The Dow is primarily reacting to signals from the US yield curve and awaiting further clarity from today’s data releases. While the 2s10s spread remains positively sloped at 0.53%, the recent rise in US 10-year yields to 4.67% alongside a slight dip in breakeven inflation suggests real yields are pushing higher, creating a headwind for risk assets. The government’s $2 billion investment in quantum computing companies, while potentially supportive for specific stocks, isn’t yet translating to broader market enthusiasm. SpaceX’s planned IPO, while significant, is more of a long-term structural story rather than an immediate driver for the Dow.
- US 10Y Real Yield (TIPS) at 2.18%, up 5bp yesterday, continues to weigh on risk sentiment and provides support for the USD.
- The Philly Fed Manufacturing Index, due at 08:30 ET, will be a key test; a miss could signal a slowdown in manufacturing and pressure the Dow.
- Net non-commercial positioning remains moderately short at -3,562 contracts, but a significant increase of 2,885 w/w suggests some short covering, reducing the squeeze risk.
NY session focus: The key event risk is the release of the Philly Fed Manufacturing Index and Unemployment Claims at 08:30 ET. Watch for reactions around the 39,700 support and 40,000 resistance levels. A strong print on manufacturing could fuel a rally towards 40,100, while a weak number could trigger a sell-off towards 39,500. Focus will also be on the Flash PMI releases at 09:45 ET. The trade that’s working is fading rallies above 39,950, while the trade at risk is holding longs ahead of the data releases. The pain trade would be a string of surprisingly strong data prints igniting a significant rally above 40,000, forcing shorts to cover aggressively.