Stocks can’t hold onto early gains, infrastructure inches forward, ISM misses, dollar down, bitcoin pares gain

Stocks got a small boost from further progress that has been made over President Biden’s infrastructure spending bill and as global bond yields tumbled.  Senate lawmakers are expected to vote on the bipartisan infrastructure spending package on Thursday.  Republicans appear poised to vote the bill through since it does not include tax hikes nor is it dependent on reconciliation.

Robust demand and low inventories countered a softer than expected manufacturing reading that supports the Fed’s wait-and-see approach to assessing the strength in the labor market recovery and inflation risk.

With the bond market continuing flatten globally, the German 30-year yield turned negative today, investors are forced to continue to buy stocks.

ISM PMI slows due to supply chain issues

The ISM manufacturing survey showed the economy is still grappling with supply chain issues.  A 14^th consecutive month of growth shows factory activity is still strong albeit at a moderating pace.  The headline index printed at 59.5, the slowest pace since January and a miss of the 61.0 consensus estimate.  Short-term pricing pressures seem likely to remain in place given the declines with supplier deliveries, raw materials, and customer inventories.  Prices paid declined from 92.1 to 85.7, but that was coming down from an elevated level.

The employment component rose from 49.9 to 52.9 and that could help boost expectations for a stronger pickup in manufacturing hiring in Friday’s payroll report.  Wall Street will shortly become fixated over Friday’s employment report and if robust hiring in July edges the market into believing substantial progress is a couple of months away.

FX

The dollar is softer as Treasuries rally across the board as the economy shows signs of exiting peak growth.  The slide in Treasury yields accelerated after a softer-than-expected ISM manufacturing report.  Wall Street won’t have a winner in the inflation debate until the fourth quarter, but if the odds of tapering start to swing sooner than later, the yield curve should start to steepen, which should be positive for the dollar.

Bitcoin

Bitcoin’s rapid pump higher and as Wall Street awaits a pivotal update over the labor market has triggered mild profit-taking.  Bitcoin is consolidating near the top of its recent trading range, but a substantial pullback seems unlikely given how much institutional money is on the sidelines.

The overall theme on Wall Street this week could be a steady consolidation until Friday, so bitcoin might continue to drift towards the USD 38,000 level.  If the yield curve refuses to steepen after this week’s nonfarm payroll report, bitcoin could have a clear path towards USD 45,000 next week.

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