Stocks finished flat on the day despite the dollar and rates falling sharply following weaker-than-expected ADP and ISM services reports. Notably, the ISM report revealed a surging prices paid index, which climbed to 68.7, the highest reading since November 2022.

Still, that wasn’t enough to offset the weaker-than-expected headline ISM services reading, which came in at 49.9 versus estimates of 52, and the ADP report, which showed just 37,000 jobs created in May against estimates of 110,000. This likely places additional importance on tomorrow’s continuing claims data and, more significantly, the jobs report on Friday. Continuing claims have been steadily rising, and this trend is likely to come into sharper focus tomorrow as well.

This ended up sending the 10-year rate lower by nearly 11 bps on the day, closing at 4.35%, and pushed the dollar index down by 41 bps. Should this trend continue, it will likely bring the US/JGB interest rate differential back into focus, as the spread between the US 10-year and the 10-year JGB fell by 14 bps to 2.84%, placing it back near a critical support level.

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A break of support in the interest rate spread would likely result in a decline in USDJPY, potentially pushing it below 140.

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There used to be a correlation between the USDJPY and NASDAQ 100 futures, but that relationship appears to have weakened recently, and the reason for this is unclear. It might be that we won’t fully understand the reason until the USDJPY drops below the critical 140 level. For now, 140 has been a solid barrier for the USDJPY.

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The odds of my reversal pattern in the S&P 500 playing out continue to fade. The only thing keeping it alive was the late-day move lower, following the formation of a head-and-shoulders pattern after 11 AM. A close below 5920 tomorrow would give the pattern another chance to survive for at least one more day.

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Meanwhile, the 2B top pattern on the S&P 500 futures continues to survive, but only by the narrowest of margins. Today’s price action nearly reinforced last week’s topping pattern, given the intraday move higher followed by a lower close.

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