Onto ISM Services & the Right Shoulder

Ashraf suggested adding the 2nd part to the title as a clue to his latest trade. Risk trades shook off Iran worries in a turnaround on Monday but are gradually returning today. Mixed messages on to whether the US is withdrawing its bases from the MidEast were corrected by the Pentagon, indicating no withdrawal. Indices VIX returns above 14, gold regains 1570, while oil pulls back below 63. The crcuial US ISM non-manufacturing survey is due up next.

Fed funds futures raising probability of June Fed cut to 30% from 16% 10 days ago. Prob of Sept cut up to 50% from 35% 10 days ago.

Ashraf Laidi @alaidi

Fading geopolitical fears is one of the all-time great trades but the timing is always elusive. There is no pricing mechanism for geopolitical risk and there is rarely a signal for peace and stability. Instead it's time that generally heals geopolitical wounds. It takes a steady stream of escalating headlines to sustain a risk-off tone, while it only takes quiet to reverse it.

That was the case on Monday in a 32- point turnaround in the S&P 500 from a solid decline to a 0.35% rise. The FX turnaround wasn't nearly as uniform but the yen softened and gold pared half of its gains. After rising to $70.74, Brent crude fell back to $68.54.

At this point in the cycle, economic data works in the opposite way to geopolitical fear. The data need to be routinely strong or improving to sustain some of the levels in risk trades. The Caixin China services PMI underscored some of the fears on Monday in a slip to 52.5 from 53.5. The worry is that manufacturing weakness is spilling over into the service sector.

In the US, there are few worries about services but that could quickly change if we get a miss in the ISM survey. The consensus for the non-manufacturing index is an improvement to 54.5 from 53.9. That will be released at 1500 GMT on Tuesday alongside the factory orders report, which are forecast to fall 0.7%.