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Services ISM surprises to upside

Edward Bell - Senior Director, Market Economics
Published Date: 04 August 2022


  • The US services ISM rose in July to 56.7, up from 55.3 a month earlier and better than market expectations. New orders were at their best level in four months with broad based gains across multiple sectors. The ISM contrasts with the S& PMI released a few weeks ago which dropped to 47.3, a level signifying contraction in the sector. According to the ISM prices paid fell to 72.3, the lowest level since February 2021 while inventories are showing signs of being run down.
  • India’s composite PMI for July fell to 56.6 from 58.2 a month earlier thanks to a considerable move lower in the services PMI which dropped to 55.5 from nearly 60 in June. The services sector underperformed relative to manufacturing where the PMI actually increase month/month in July. Employment in the services data dropped to just barely above the 50 level demarcating expansion from contraction while future activity dropped month on month. The RBI sets policy later this week with markets expecting a 50bps hike.
  • Inflation in Turkey rose by 79.6% y/y in July, up from 78.62% in June and coming in marginally lower than market expectations. On a monthly basis, the CPI index in Turkey rose by 2.37% compared with almost 5% a month earlier. Core price growth was 61.7% y/y while producer price inflation remains in the triple digits at 145% y/y. Transport and food costs remain the largest drivers of higher annual inflation with transport costs up 119% y/y while food prices were nearly 95% higher. However, on a monthly basis, transport costs actually moved lower, falling by 0.9% m/m.
  • Retail sales in the Eurozone fell much more than expected in June, dropping by 1.2% m/m and 3.7% y/y. A drop in online purchases was behind the bigger than expected decline, accelerating from the annual declines of the last two months. Germany saw a large drop in retail sales, down almost 9% y/y compared with about 3% a month earlier. Among the other large economies, retail sales managed to hold up better with France recording a at 0.6% y/y increase while Italy recorded a fall of 2.8% and the Netherlands also showed a large drop of more than 6% y/y.

Today’s Economic Data and Events

  • 10:00 GE Factory orders m/m June: forecast -0.9%
  • 15:00 UK Bank of England bank rate: forecast 1.75%
  • 16:30 US Initial jobless claims July 30: 260k

Fixed Income

  • US Treasuries went through another day of volatile trading with the 2yr UST moving about 20bps from low to highs before settling at 3.0651%. The 10yr UST yield moved about 15bps higher during much of the session, rising up to 2.85%, before rapidly giving it all back and closing lower by 4bps to 2.7046%. Geopolitical uncertainty, the risk of a recession and still hawkish Fed commentary are all pulling on the market in multiple and contradictory directions.
  • Neel Kashkari, president of the Minneapolis Fed, noted that rate cuts in 2023 seemed like a “very unlikely scenario” and that the Fed would probably still be raising rates until they had “a lot of confidence that inflation is well on its way back down.” The president of the San Francisco Fed, Mary Daly, said that 50bps seemed to be the “reasonable thing to do in September” when the FOMC next meets, while Thomas Barkin from the Richmond Fed said that calling the economy in recession is “a little inconsistent” and the Fed will “do what it takes” to get inflation lower.
  • European bonds were lower more or less across the board, showing some wide moves like US Treasuries. The 2yr Schatz yield moved about 12bps across the day before settling higher by 7bps at 0.36% while the 10yr bund added 6bps to 0.868%. In the UK, the 10yr gilt yield added 4bps to 1.908% ahead of today’s Bank of England where we expect a 50bps hike in the Bank Rate.


  • The dollar extended its gains for a second day running even through some choppy trading in FX markets. EURUSD traded in a range from a top of 1.02 to less than 1.015 to end the day essentially unchanged. GBPUSD dropped for a second day, down by 0.17% to 1.2149 ahead of today’s Bank of England meeting where the BoE will need to be forthright it if wants to convince markets it has the inflation challenge under control. USDJPY added 0.5% as haven demand dissipated.
  • Commodity currencies were generally stronger with USDCAD down by 0.3% to 1.2843 in favour of the loonie. AUDUSD added 0.4% to 0.6948 while NZDUSD was essentially unchanged at 0.6267.


  • Equity markets responded favourably to China’s moderate reaction so far to the visit of Nancy Pelosi to Taiwan. The Dow Jones added 1.29% overnight, bettered by gains of 1.6% in the S&P 500 and 2.6% in the NASDAQ. European markets were also higher with the FTSE rallying by 0.5% and the Euro Stoxx 50 up 1.3%
  • Asian markets are uniformly positive in trade this morning with the Nikkei up by 0.6% and the Hang Seng gaining more than 2%.


  • OPEC+ agreed to increase production by 100k b/d collectively in September, essentially adding nothing to change the narrative around oil markets as the hike will be barely noticeable and may end up as a rounding error in some countries’ production. Oil prices initially rallied on the news but given that the situation around oil remains the same—recession and geopolitical risks to the downside, supply constraints for the upside—prices turned lower sharply. Brent settled down at USD 96.78/b, a drop of 3.7% while WTI fell almost 4% to USD 90.66/b.

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