Where we are: Dow futures are currently trading around 39,950, slightly lower on the session. We’ve seen a choppy overnight session, with a range between 39,900 and 40,020. This level sits below Friday’s New York close, indicating some initial weakness heading into the cash open. Key support remains around 39,800, a level to watch closely.
What’s driving it: Rising US Treasury yields are weighing on risk sentiment this morning, triggering a rotation out of high-flying tech names and impacting the broader Dow. The US 10-year yield climbed 12bp on Friday to 4.59%, driven by persistent inflation concerns reflected in the stubbornly high 10Y Real Yield (TIPS) at 2.1%. This rise in real yields is putting pressure on equities, particularly those sensitive to discount rates, and acting as a headwind for gold. The delay in the Iran situation, mentioned in the wires, is providing only temporary relief, overshadowed by the domestic macro picture.
- The 2s10s spread continues to widen, currently at 0.54%, up 4bp on Friday, suggesting the market is pricing in a potentially more hawkish Fed stance.
- VIX has risen to 18.43, a 6.78% increase on Friday, reflecting increased market unease and hedging activity.
- Speculative positioning in Dow futures remains moderately short, with net non-commercial positions at -3,562 contracts. While not extreme, the recent increase in short positions (+2,885 w/w) could exacerbate any downside move.
NY session focus: Keep an eye on the 10:00 ET Pending Home Sales release, though the market’s focus will likely remain on yield action. A stronger-than-expected print could exacerbate yield pressures and weigh further on the Dow. Key levels to watch are 39,800 as immediate support and 40,050 as resistance. The relative underperformance of AI infrastructure names like Nvidia, Tesla, and Meta is a significant risk. The trade that’s working is shorting momentum tech names into strength. The pain trade for the Dow would be a surprise dovish shift in Fed rhetoric that sends yields sharply lower.