The key focus this week will be on the US ISM non-manufacturing PMI print. Recently there has been a divergence between expectations for US manufacturing and US services as the US has a disjointed post-Covid recovery. The last US ISM non-manufacturing print showed a surprise print higher over 55 for January which was well up from December’s prior reading which was sub-50.

So, one of the factors underpinning expectations of a more aggressive Federal Reserve has been better US data in February. The NFP was strong, US retail sales were hot, CPI and PPI had higher monthly components (despite the year-on-year print falling) and of course, this print rose higher even as manufacturing PMI fell. See here for the last Manufacturing PMI print.

What’s the trade?

The trade would be any signs of the US services sector slowing down. Friday’s print is a leading indicator and traders will be watching it closely. If it comes in high again, and exceeds the high expectations of 56, with the price components higher and New Orders 58.2 or better then stocks will likely be pressured. However, that bias has been for all of Feb. The best opportunity would come from a big miss in the data. Anything under 52.4 and a drop below 50 for the employment component alongside a fall in prices would be risk positive. Why? Because it would take the pressure off the Federal Reserve to hike rates which would likely see a snap reaction in USD weakness, precious metal upside, and S&P500 upside.

Data is released at 15:00 UK time. This is one event not to miss this week.