The intensity of the US dollar reaction to the PMI is instructive
Read full post at forexlive.com
This is a market that’s been desperately searching for signs of a cooling economy and it’s treating today’s S&P Global US PMI like an oasis in the desert.
It’s similar in FX, where we are getting a round of US dollar selling that’s lifted the euro by 40 pips and the pound by 60 pips.
I wrote yesterday about how I thought we had hit the point of maximum pain in bonds. We may get a better signal in today’s whopping $69 billion sale of 2s but with a 3 bps decline today, a sale at 5% is looking less likely.
The S&P Global services PMI doesn’t have a perfect record but it’s a forward-looking indicator and cracks the door open to some cooling in the economy — and the rate cuts the market wants with it.
The combination of the six-day rout in stocks and the pain trade all year long in bonds could mean a rapid re-evaluation of the path of the economy. Many forget that the US is running a deficit close to 7% of GDP. Once that’s removed in 2026 (depending on the election results), the economy will need lower rates to grow, similar to what we’re seeing elsewhere.