US ISM Services crumbles to a 3-year low; Stocks and Dollar tank

The non-manufacturing ISM index is still in expansion territory, but today’s release highlights hirings are easing up and orders are dropped 6.6 percentage points.  It is clear the trend with most of the major US data points are trending lower and it seems slowdown concerns have been confirmed.  The doom and gloom that started with manufacturing appears to be starting to show signs of creeping into the service sector.  The ISM report triggered a new wave of risk aversion with both US stocks and the dollar extending their declines on the week. 

While the service sector is still adding jobs, it is very apparent that we are no longer adding jobs at a strong pace and we will likely see further weakness in the service sector have a strong ripple effect in the coming months. 

With slowdown expectations firmly in place many will expect the Fed to respond with an easing cycle to stop the growing risks of a recession.  Rate cut won’t be enough, the QE debate will likely begin in the coming meetings.  Fed Fund Futures odds for an October rate cut jumped from 72% to 87.3%.  The market is now pricing in just over 40 basis points in rate cuts for the remainder of the year, implying we could see a string of cuts in October and December. 

Markets will now closely await comments from Fed’s Clarida later this evening and Fed Chair Powell remarks at the Fed Listens Event tomorrow afternoon.  If we see Clarida or Powell start to show capitulation signs that an easing cycle is upon us, we could see the dollar extend its declines. 

Gold

Gold prices surged off the disappointing ISM service sector release, but has started to pare back its gains. Gold will need a disappointing nonfarm payroll headline number to take out last week’s high of around $1,540 an ounce.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya