07 September 2023
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US services sector gained momentum in August

By Khatija Haque

The ISM services index in the US jumped to a six-month high of 54.5 in August, from 52.7 in September and well above the median forecast. All the main components of the survey improved last month with the employment index up four points. Prices paid jumped to the highest level since April. Growth was also broad-based across most sectors including entertainment & recreation, and accommodation & food services. However, the S&P Global services PMI painted a different picture, with the services index easing to 50.5 from 51.0 in July. The S&P Global composite PMI was also slightly lower than expected at 50.2.

The Fed’s Beige Book survey showed modest economic growth in July and August, and business expectations for wage growth to slow in the near term. While consumer spending remained robust overall, there was evidence that consumers have run down excess savings and are relying more on credit. Some regional banks also reported increased reliance on support services such as food banks in parts of the community. The Fed is expected to keep rates on hold at this month’s meeting.

The Bank of Canada kept rates on hold at 5.0% as expected yesterday, but policymakers reiterated their readiness to hike again if needed to bring inflation back to target and noted the “persistence” of underlying inflation pressures. The decision to hold rates at a 22-year high was due to a weaker economy, as growth contracted in Q2.

German factory orders fell sharply in July, down -11.7% m/m and -10.5% y/y, much worse than analysts’ expectations. The decline was the biggest since the depth of the pandemic in 2020 and was due to a sharp drop in major orders. While the series is volatile, the disappointing data suggests that the outlook for Germany’s economy remains weak, even as inflation remains well above target.

The Turkish government has revised down its real GDP growth projection for 2023 to 4.5%, from 5.0% previously, while the end-2023 inflation forecast was raised to 65.0%, from 25.0%. CPI inflation came in above expectations at 58.9% y/y in August, and the central bank has cautioned that the risks are to the upside through year-end on both external factors and on cost pressures from wages and tax regulations. The central bank had already revised up its own inflation forecast to 58.0% and embarked on sharp monetary tightening over recent meetings which is one of the factors that will weigh on GDP growth in the coming quarters.

Today’s key economic data and events

  • 10:00 Germany industrial prodution (Jul) forecast -0.4% m/m
  • 13:00 Eurozone Q2 GDP (final) forecast 0.3% q/q and 0.6% y/y
  • 16:30 US Initial jobless claims (Sep 2) forecast 234k
  • China trade data for August due, forecast -9.0% y/y for both exports and imports

Fixed Income

  • A stronger than expected services ISM print for August helped to lift US Treasury yields and put the prospect of an additional rate hike back in play. Yields on the 2yr UST added about 6bps to settle at 5.0162%, the first close above 5% since late- August. The 10yr yield also rose, up 2bps to 4.2797%. Susan Collins, president of the Boston Fed, said the Fed needed to be patient on rates and that “further tightening could be warranted” if data shows a risk of inflation resurging.
  • European bonds also sold off with gilt yields up marginally, less than 1bps, to 4.527%, while bund yield added 4bps to 2.65%. Andrew Bailey, governor of the Bank of England, said the bank may be “near the top of the cycle” in comments to parliament.
  • Turkey’s president said “tight monetary policy” was needed to battle inflation, giving room to the central bank to extend its rate hikes after a 750bps rise in August.
  • DP World is pricing a USD green sukuks at T+150bps in initial guidance.


  • GBPUSD was the standout among currency markets overnight, responding negatively to the comments from Andrew Bailey that the Bank of England may be near the end of its hiking cycle. GBPSUD fell 0.5% to 1.2507 compared with EURUSD which closed near unchanged. USDJPY was slightly lower at 147.66.
  • Commodity currencies closed more mixed with USDCAD closing near unchanged as the Bank of Canada kept rates on hold while AUDUSD was slightly stronger at 0.6382 and NZDUSD dripped 0.2% to 0.5873.


  • More weak economic data out of the Eurozone weighed on the bloc’s equity indices on Wednesday. The DAX and the CAC ended down 0.2% and 0.8% respectively while the composite STOXX 600 dropped 0.6%. The UK’s FTSE 100 ended down 0.2%.
  • There was similar weakness in the US after the stronger than expected ISM print released yesterday. The Dow Jones dropped 0.6%, the S&P 500 ended down 0.7%, and the NASDAQ was the biggest loser as it lost 1.1%.
  • Locally, the DFM dropped 0.4% and the ADX 0.5%. In Saudi Arabia the Tadawul closed down 1.0%.


  • Oil markets extended their positive response to Saudi Arabia and Russia extending their production and export cuts until the end of the year. Brent futures added 0.6% to USD 90.60/b and WTI added almost 1% to USD 87.54/b. Data from the API showed a 5.5m bbl drop in commercial crude stocks in the US while gasoline inventories also pulled much tighter, down 5.1m bbl.
  • Natural gas prices settled softer across all markets—Henry Hub, national balancing point and North East Asia. Inventory levels look to be relatively full heading into cooler heating months.
  • Saudi Arabia raised its official selling prices for October with the OSP for Arab Light to Asia at its highest level since December last year.


Written By

Khatija Haque Head of Research & Chief Economist

Edward Bell Head of Market Economics

Daniel Richards Senior Economist

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