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US ISM services index disappoints with near-stagnant growth

Edward Bell - Senior Director, Market Economics
Daniel Richards - MENA Economist
Jeanne Claire Walters - Senior Economist
Published Date: 06 June 2023


The US ISM services index remained only factionally above the neutral-50 level, dipping to 50.3 in May from 51.9 in April, to reach a 5-month low. The reading was materially below consensus expectations for a rise in the index to 52.4. The softening in the headline index was driven by declines in all four main sub-components, with the employment index (in sharp contrast to last week’s nonfarm payroll data) dropping to 49.2 in May from 50.8. The headline figure also stands in contrast to the more upbeat assessment coming from the S&P Global US services PMI.

US factory orders rose for a second consecutive month in April, rising 0.4% m/m, but came in below expectations for a 0.8% gain. The bulk of the growth in April was attributable to defense spending. March factory order data was also revised lower to 0.6% m/m from an original reading of 0.9%.

Turkish CPI inflation slowed to 39.6% y/y in May, down from 43.7% in April and marginally higher than the predicted 39.2%. This was the first reading under 40% since December 2021 and is less than half the recent peak of 85.5% hit in October last year. Prices were flat on the previous month, down from a 2.4% gain in April, as the provision of free natural gas in May offset price gains elsewhere. Less positively for the central bank, core inflation rose to 46.6% y/y in May from 45.5% previously, confounding expectations of a slowdown to 43.7%. PPI inflation slowed to 40.8% y/y, from 52.1% previously.

The S&P Global India services PMI remained well above the neutral-50 mark in May but did fall back marginally to reach a value of 61.2, from 62 in April. Despite the small fall, the May reading remains the second-strongest pace of expansion in almost 13 years.  

Today’s Economic Data and Events

  • 10:00 German factory orders, Apr. Forecast: 2.8% m/m

Fixed Income

  • A sharp drop in the US services ISM index for May prompted a late-day rally for US Treasuries. The 2yr yield had moved up above 4.5% for much of the day only to plummet to 4.4659% by the end of trading, down 3bps on the day. The 10yr showed a similar range of intraday swings but closed the day near unchanged at 3.6831%. The soft ISM read also helped to push rate hike expectations for the June-July meetings lower with a 25bps hike over the two meetings about 75% priced in now.
  • European bonds closed the day weaker with yields up 6bps on bunds to 2.374% while gilt yields added 4.198%.
  • Turkey 10yr USD bonds extended their rally from last week with yields down 50bps to 8.534%.


  • The dollar sold off mid-day after the low reading on the ISM services index. EURUSD managed to trade marginally higher, closing at 1.0713 while it wasn’t enough for GBPUSD to recover lost ground and it closed down 0.1% on the day at 1.2438. USDJPY moved lower by 0.2% to close at 139.58.
  • Commodity currencies had a mixed day with USDCAD up 0.2% at 1.3445 while AUDUSD gained 0.1% to 0.6617 and NZDUSD rallied slightly to 0.607.


  • The worldwide rally in equities seen at the close of last week has sputtered out, and there were losses on the global majors yesterday. In the US, the NASDAQ, the S&P 500, and the Dow Jones dropped 0.1%, 0.2%, and 0.6% respectively.
  • There was a similar story in Europe where the FTSE 100 ended the day 0.1% lower while the DAX dropped 0.5% and the CAC 1.0%.
  • Locally, the DFM was a bright spot as it bucked the trend to end Monday 1.4% higher. The ADX was less positive and closed down 0.3%. In Saudi Arabia the Tadawul ended up 0.6% as oil closed higher.


  • After an early pop in response to the announced 1m b/d production cut from Saudi Arabia, oil prices drifted lower over the rest of the day. Brent futures closed the day at USD 76.71/b, up by about 0.8%, while WTI settled at USD 72.15/b, up less than 0.6%.
  • Saudi Aramco has raised all their official selling prices for July in line with a cut in production. Prince Abdulaziz bin Salman, the Saudi energy minister, said he was “fed up” with OPEC producers failing to hit quotas and wanted more transparency from Russia on production levels.