US ISM services data was better than expected in July

The better than expected US ISM services index helped to reassure markets that the world’s largest economy is probably not on the brink of recession. The ISM index rose to 51.4 in July from 48.8 in June with both business activity and new orders rebounding from the weak June figures. The employment index also moved into positive territory for the first time since January. However, firms indicated that higher interest rates were dampening demand. The S&P Global services PMI declined slightly to 55.0 in July from 56.0 in June.

The Eurozone composite PMI rose fractionally to 50.2 in July, slightly better than the preliminary reading last week, as services expansion offset weakness in manufacturing. Germany’s composite PMI also improved from the flash estimate to 49.1 but was still softer than June’s 50.4. The UK’s composite PMI improved slightly to 52.8 last month from 52.3 in June.

Turkey's CPI rose 3.2% m/m in July, faster than the 1.6% m/m rise in June and also slightly ahead of market expectations. Nevertheless, the annual rate of inflation slowed to 61.8% y/y from 71.6% in June, due to the high annual base. The rise in utilities and other administered prices contributed to the rise in the monthly inflation reading. Core inflation fell to 60.2% y/y from 71.4% in June. The central bank expects inflation to fall to 38% by the end of the year although the forecasts may be updated this week.

Key Economic Data and events

10:00 Germany factory orders (Jun) forecast 0.5% m/m and -14.2% y/y

Fixed Income

• The US yield curve normalised on Monday with two-year yields falling below 10-year yields for the first time since 2022 as the market priced more aggressive rate cuts from the Fed in the near term. However, the curve inverted again by market close. The 2y yield closed at 3.92% yesterday, up from 3.88% on Friday, and has increased to 3.96% in Asian trade this morning. The 10y yield was unchanged from Friday’s close at 3.79% and has also risen in early trade this morning.
• Benchmark European bond yields rose almost across the board yesterday, with Sweden and Switzerland the exceptions. German 10y bund yields rose 1.5bp to 2.18% while 10y gilt yields rose 4bp to 3.87%.

FX

• The dollar index fell again on Monday by -0.5% as the market repriced rate cut expectations. The yen was again the main beneficiary of dollar weakness, gaining 2.8% to 142.38/USD yesterday. However, the yen is trading -1.6% weaker this morning. CHF gained 1.1% yesterday to 0.8493 while EUR rose 0.3% to 1.0948. GBP declined -0.3% to 1.2758.
• Commodity currencies were mixed with AUD and NZD depreciating against the USD while CAD gained slightly.

Equities

• US equity markets opened sharply weaker on Monday but pared their losses during the session. The Nasdaq100 and S&P500 both closed -3% lower while the DJIA closed -2.6% lower. European equity markets were also in the red on Monday with the eurostoxx50 losing -1.5% and the FTSE100 down -2.0% on Monday. Asian markets have rebounded this morning with the Nikkei 225 up more than 9% as of this writing. US futures are also in the green this morning.
• Local equity markets closed lower on Monday with the DFMGI declining -4.5% and ADXGI down -3.4%. The Saudi Tadawul ASI fell -2% on Monday.

Commodities

• Oil prices closed lower again on Monday as the risk-off tone persisted in markets. Brent declined -0.7% to USD 76.3/b while WTI fell -0.8% to USD 72.94/b. Both benchmarks are trading sharply higher this morning, as Asian equity markets have rebounded.