Where we are: The Dow Jones futures are trading down 0.52% at 51850, extending yesterday’s weakness and trading below the prior New York close of 51713. Overnight action saw a broad risk-off sentiment permeate Asian and European markets, with major indices across both regions firmly in the red. The VIX is elevated at 19.93, indicating a heightened risk premium.
What’s driving it: The primary driver remains the lingering hawkish sentiment from the Fed’s recent dot plot, which continues to weigh on Treasury yields and support the dollar. While US yields have softened slightly in recent days, they remain elevated, creating headwinds for equities. The global risk-off tone, evident in sharp declines in Asian tech and European bourses, is spilling over into US futures, exacerbated by concerns around AI spending sustainability and potential overvaluation.
- Fed speeches yesterday offered no new policy insights, but the market continues to digest the implications of higher-for-longer rates.
- US Treasury yields, though down slightly d/d, are still elevated, with the 10Y at 4.46% (FRED) and 4.491% (Cross-Drivers), capping upside for risk assets.
- Net non-commercial positioning in Dow Jones futures shows a crowded long stance (+2,867 contracts), increasing the risk of a squeeze on any disappointment.
NY session focus: The immediate focus will be on the 09:45 ET Flash Manufacturing and Services PMI prints. Expectations are for a slight moderation in manufacturing activity but a modest uptick in services. A weaker-than-expected manufacturing PMI could offer some relief to yields and potentially support the Dow, while a strong services number might reinforce inflation concerns and weigh further. The pain trade for the Dow today is a sharp downside break below the 51500 support level, triggering further unwinding of crowded long positions.