ISM Services spark tighter conditions
Sept 7, 2023
–Much stronger than expected Service ISM sent short-dated contracts lower, accentuating curve inversion. SFRU4 and Z4 settled at new lows for the move, 9525.5 (-7.5) and 9559 (-8.5). Weakness in reds caused near one-year calendars to settle at new recent highs, -67.5 in SFRU3/U4 (9458/9525.5) and -104.5 in Z3/Z4 (9454.5/9559). Data like yesterday’s reinforces the idea that “the last mile” in getting inflation to target is likely to be a long slog which will forestall the easing schedule.
Data: ISM Service 54.5 vs 52.7 last. Employment and New Orders higher. Prices 58.9 vs 56.8 last.
–2-yr note ended above 5% at 5.022% and the ten-year inflation-indexed note is now essentially at 2%, a level not seen since early 2009. At the same time, the dollar continues to strengthen, for example USDCNY at new high today 7.3284. Financial conditions are again tightening. 5/30 which had been hanging around zero closed at -7.8 bps, and 2/10 eased 3.4 bps to -73.4.
–News today includes Productivity and Unit Labor Costs, the latter expected 1.9%. Jobless Claims 234k. Fed speakers in the afternoon, Williams, Bostic (economic outlook), Bowman (Future of Money and Consumer Protection conference). Harker early at 9:00.
Below: 10-yr inflation-indexed note yield
