OPTIONS: Expiries for Apr07 NY cut 1000ET (Source DTCC)

The dovish ADP employment move fades in the wake the higher-than-expected ISM services survey (with both the headline reading and major components topping expectations).

• Fed Funds now price 73.5bp of cuts through December vs. 80.5bp ahead of the data.
• 12bp of cuts priced through May and 29bp showing through June, compared to 14bp & 32bp pre-data.
• Ongoing signs of sticky services inflation present continued background worry for the Fed, but markets have become more attuned to downside economic growth risks in recent weeks.

The ISM services index was stronger than expected in Feb at 53.5 as it surprisingly climbed 0.7pts after a -1.2pt drop in Jan. The most notable component was employment, which showed no sign of echoing the service PMI with its first job cuts in three months.

• ISM services: 53.5 (cons 52.5) in February after 52.8 in Jan.
• Employment: 53.9 (cons 51.6, 4 responses) after 52.3 – highest in three years
• Prices paid: 62.6 (cons 60.4, 6 responses vs 58 for the headline index) after 60.4 – highest since Dec and before that Jan 2024.
• The 2.2pt increase follows a volatile period with -4pts in Jan and +5.9pts in Dec. Looking in broader trend terms, it’s above the 58.7 averaged in 2024, 59.3 in 2023 and 57.5 in 2019 but far below the 80-85 readings in 2022.
• The level is similar to the 62.4 seen in Monday's manufacturing prices, although the latter has seen a sharper relative increase recently to its highest since Jun 2022 having increased 12pts since Nov (when Trump won the presidential election).
• New orders: 52.2 (cons 51.5, 4 responses) after 51.3 – the weakest of the main components considering the 0.9pt increase only partly reversed a sharp -3.1pt in Jan.

• Some record Volumes in the Euribor strip as desks reprice the RTate outlook following the German Debt break.
• ERZ5 daily volume in one Chart, the bottom rigjht spike is the traded volume today vs the rest.