OPTIONS: Expiries for Sep05 NY cut 1000ET (Source DTCC)

July's ISM Services data were more "stagflationary" than anticipated, with a dip in activity amid a pickup in price pressures. The report overall suggests that firms' tariff-related concerns linger, with momentum failing to build on a brief improvement in June. Combined with the headline index, the subcomponents of the survey show a clear slowing in activity since late 2024.

• The headline Services PMI reading fell by 0.7 points to 50.1 (51.5 expected, 50.8 prior), merely a 2-month low but suggesting that an expected pickup in momentum and sentiment is not materializing. The ISM report writes that the index is consistent with 0.5% annualized real GDP growth. Business activity fell 1.6 points to 52.6.
• The main worrying point was new orders, which fell 1 point to 40.3 (no expectations). That was led by a 3.2 point drop in new export orders (47.9) - which apart from March 2025's tariff driven low (45.8) was the joint-weakest since March 2023. Imports fell 5.8 points from 51.7 - one firm's anecdote was “Imports have increased in price, to be less competitive than domestic vendors.”
• Employment, too, was a weak spot - down 0.8 points at 46.4, it's now declined in 2 consecutive months after a brief return above the 50.0 mark in May. It's now been below 50 in 4 of 5 months (i.e. contractionary). However, the anecdotes of the latest report make it difficult to know whether this squares with the broader "low hiring, low firing" theme in data elsewhere, with firms reporting supply-side restraints rather than weaker demand ("Comments from respondents include: “Lost a few service technicians; still difficult to recruit in this market” and “We have lost employees due to normal attrition and are having issues backfilling these positions with qualified candidates.”)
• Inventories fell by a second consecutive month, by 0.9 points to 52.7 (further evidence of pre-tariff buildup reversing; inventory sentiment pointed to inventories were "too high" at 53.2 albeit down from 57.1 prior and the lowest since Oct 2024), while supplier deliveries rose 0.7 points to 51.0 (slower supplier deliveries, which is a positive for the headline reading).
• Prices paid meanwhile ticked up 2.4 points to 69.9 (66.5 expected, 67.5 prior), a fresh 33-month high. While MNI had flagged potential upside risks to the prices reading, based on regional Fed surveys and the flash PMI report, this was even higher than we would have anticipated and defies a pullback in its manufacturing counterpart.

FX Exchange trade Option, looking for EUR upside, doesn't cover the next Sep ECB meeting (11th Sep):

• EURUSD (5th Sep) 1.1600c, bought for 0.0096 in 1.4k.

• Bund sees a small jump higher after the ISM and some of its components come below expectations, Price paid was decent beat, but MNI noted some upside risk to price on our preview.
• Moves and ranges are still fairly limited although the US Emini has pushed through the session low.