US stocks fell, and bond yields surged after a  robust ISM services print, suggesting the most vital part of the US economy and where the “sticky” inflation lives is not close to keeling over.

Outstanding news from the vast services-based US economy is devastating for market participants keen to see evidence of the US economic disintegration. Yes, suffering on Main Street contributes to less aggressive monetary policy and, thereby, a resumption of the wealth effect through a stock market rally. Indeed, once the economy shows more profound fatigue, Wall Street can truly mend courtesy of a more accommodating Fed.

Coming as it did on the heels of Friday’s jobs report, which indicated that the rumours of the US economic demise were greatly exaggerated, the market immediately moved into” Good news is Bad” mode, which saw investors ride roughshod over the dovish pivot camp, deferring to Powell’s guidance of higher for longer interest rates as this late-cycle economic resilience is causing more than a few traders to stand up and take notice.

Indeed, the perceived quiet weeks always come back to bite.


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Brent crude fell sharply as traders were lathered with trepidation after the unexpected increase in service sector activity in America, which triggered red flashing signals the Federal Reserve may keep interest rates higher for longer, increasing the odds of a US recession.

Still, China’s reopening sentiment should provide a plank for the crude price to springboard off. And, of course, the faster the market prices in reopening-driven growth acceleration, the higher oil prices will go. But to reach maximum reopening acceleration, traders must navigate an obstacle course of skyrocketing Omicron cases and steep drop-offs in mobility. Oil prices never do well in that environment.


China is taking a real shot at reopening after three years of rolling lockdowns and draconian virus curbs blamed for kneecapping the world’s second-largest economy. And for credulous markets, this is all excellent news as some investors view current levels as a once-in-a-generation entry point for China stocks. But It helps that long-end US yields were down sharply from the highs amid Fed “step down” optimism.

The dollar is, of course, coming off its worst month in a dozen years certainly helped inflows.

China’s reopening will take a lot of work. Suspicious minds will bank on being a fits-and-starts affair, brimming with false dawns, mixed economic signals, skyrocketing case counts and replete with lockdowns frights.


Even though the US dollar has veered off its negative skew after the strong ISM print, speculators may continue to reduce their bullish bets. Any rally could be seen as an opportunity to reduce exposure going into year-end.

The recent decline in the dollar has primarily been driven by the Europen and China growth expectations that have risen relative to the US. The energy situation in Europe appears resolved for now, and China’s reopening has positively influenced local units, China betas, and the broader G10. Mind you, the decline in US yields was also a big driver.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT