The S&P Global services PMI may be the best evidence yet that the US economy is slowing. The services index fell to 46.4 from 49.3, far below the 49.2 consensus estimate.
Surveys are some of the best forward-looking data out there and this confirms that Fed hikes are working as intended. The data also cracks open a case for a less-hawkish Fed beyond next week's high, which is 95% priced in for 75 bps.
The initial market reaction was strong with the S&P 500 gaining 30 points. However it's since given it all back with tech stocks particularly soft. The problem with a bad-news-is-good-news trade is that it adds uncertainty on the economic side. For companies with strong underlying demand, lower rates are great but at the margins, it's unclear where the pain will hit.
At the same time, steering the economic ship is tough. The speed of the decline in the services sector may hit the real economy as well. Once job losses start, they're tough to stop.
What's especially surprising is the bonds continue to sell off. The playbook for many traders is to buy bonds when real economic weakness hits but yields are near session highs at the moment.
