Positive surprise on ISM Services 

The performance of the US services sector continues to hold up well. September’s ISM Services came in with a decisive positive surprise with an improvement to 61.9 (from August’s 61.7). Consensus had expected a slight deterioration to 59.9.

This means that both ISM headline surveys improved in September after the manufacturing data showed improvement last week. The good news from the ISM Services data came just 15 minutes after the IHS Markit PMIs which also came in better than expected.

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However, the ISM also submits sub-component surveys, which market participants will also have been interested to see. The Employment sub-component dropped slightly to 53.0 (from 53.7) suggesting mild expansion in the labor market, whilst New Orders held up well at 63.5 (from 63.2 last month). However, perhaps the most interesting is that the Price Paid sub-component is increasing for not only Manufacturing but also Services too. This will be something that the Federal Reserve will be keeping an eye on.


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What does this mean?

The ISM data suggests that activity in the services sector remains robust and expansionary. However, there are still issues of contracting inventories and mounting pricing pressures. Whilst this will come of little surprise for the Fed, it certainly plays into the need to start normalising monetary policy. With little real prospect of this changing the Fed’s course for monetary policy tightening, positive US economic data is seen as positive for risk assets.


Initial Market Reaction

Markets have been fairly muted to this data. Perhaps there is something already in the market, with the US 10 year yield already having jumped higher by around 2 basis points following the better than expected Markit US PMIs just 15 minutes before.

However, there is a broad risk positive reaction with mild USD gains too. The reaction is primarily coming through the rally in US equity futures. USD has gained marginally as EUR/USD has been pulled lower. Furthermore, gold has slipped slightly (although has since retraced much of the move). Since the data announcement: