Where we are: The Dow Jones Industrial Average (US30) futures are trading around 39,850, slightly below the overnight high of 39,900, and well within Friday’s range. The index closed last week on a strong note, but appears to be consolidating those gains as traders look to the week ahead. Friday’s close was 39,900.
What’s driving it: Rising US real yields are creating a headwind for equities. The 10-year real yield has climbed to 2.18%, up 5bp on the day, increasing the attractiveness of fixed-income assets relative to stocks. This comes as the market prices in a potentially less dovish Fed stance in the face of persistent inflation. Optimism around potential US-Iran deal has faded, despite initially boosting sentiment and contributing to last week’s gains.
- The 10-year Treasury yield is holding steady at 4.57%, a level that continues to provide resistance for equity bulls.
- Net non-commercial positioning in Dow Jones futures remains moderately short at -10,765 contracts, although this has decreased by 7,203 contracts w/w, suggesting a possible shift in sentiment or short covering.
- The broad USD index is firm at 119.2825 (as of May 15th).
NY session focus: With US markets closed today for a public holiday, trading activity is expected to be subdued. Focus will be on positioning ahead of the upcoming PCE inflation data later this week. Watch the 39,700 level for support; a break below could signal further downside. Resistance remains at 40,000. The trade that’s working is fading rallies into resistance. The pain trade would be a renewed push above 40,000 triggering short covering and a breakout to new highs, unlikely given the holiday mood.