ISM Service Index sends stocks lower, Crypto volatility

US stocks are declining as Wall Street debates whether this bear market rally has finally come to an end. ​ With the exception of an inflation-fueled ISM Services index, it should be relatively on the data front until Friday’s one-two punch of PPI and the University of Michigan report. ​

Many traders are wondering if next week’s Fed decision will be the last one with a rate hike. ​ Fed fund futures expect a 50bps increase on December 14^th and the February 1^st meeting remains a toss-up between a 25 bp increase or one last half-point increase. Inflation will likely prove to be stickier and with the service part of the economy refusing to weaken. ​ The risks that the Fed might need to do more remain elevated and that is why this economy needs to head to a recession. ​ This next recession however won’t be rescued by quick Fed easing or a fiscal response as that will fuel inflation risks. ​ ​ ​ ​ ​

US Data

The ISM services index unexpectedly improved in November, with a slight decrease in prices paid. ​ This report could suggest wage pressures will remain strong. The headline index printed at 56.6, much better than the estimate of 53.3, while prices only softened from 70.7 to 70.0. ​ The employment component also rebounded back to expansion territory. ​ Good economic news is bad news for stocks as it will keep the risk elevated that rates might have to end up higher later next year.

​Cryptos

Bitcoin’s earlier gains evaporated after a hot ISM services report fueled bets that the Fed could tighten much more than markets are currently pricing. ​ The crypto headlines haven’t been too surprising as they focus on how much money was loaned out and will likely be lost. ​ It is fascinating to see how resilient bitcoin has performed over the last few days, but a sustained move higher seems unlikely. ​