US DATA: Solid Dec ISM Manufacturing Survey Points To Slowly Improving Activity
Jan-03 15:21
The December manufacturing ISM survey beat expectations, but still pointed to soft if improving sectoral dynamics.
- The headline reading of 49.3 was an improvement from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- The sub-50 reading still indicates a contracting manufacturing industry in December, in line with the S&P Global PMI, MNI Chicago PMI, and various regional Fed indices, but activity appears to have improved since a summer bottom. A boom does not appear to be in the offing, though the potential front-loading of production to dampen the impact of tariffs and other policy changes is a dynamic worth watching in the coming months.
- The internals of the survey looked solid as well for the most part, with several categories printing multi-month highs.
- In the most encouraging sign of improving momentum, New Orders picked up for the 4th consecutive month to 52.5 (from 50.4 prior), equaling the best reading of the year seen in January, with New Orders minus Inventories ticking a little higher. Production rose strongly, to 50.3 (from 46.8 prior), an 8-month high.
- Intriguingly given tariff (and retaliatory tariff) uncertainty going into 2025, export orders rose for the 3rd consecutive month (1.3 points to 50.0, a 7-month high). And the ISM noted in the report regarding inventories that "This month’s index reading indicating a slowing rate of contraction suggests that companies are willing to invest more for the future, to (1) better perform to their customers’ delivery demands or (2) advance material deliveries to avoid potential tariffs, or a combination of both."
- On the more concerning side: prices paid rise more than expected to 52.5 (50.3 prior, 51.8 survey), a 4-month high. That's still well below the supply chain/pandemic reopening levels above 80.0, but offers another suggestion that goods price inflation is at or near a bottom.
- And the employment index index fell 2.8 points to 45.3, the largest pullback since July (reversing November's outsized 3.7 point jump), which may be taken into account for estimates for the December nonfarm payrolls report.
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US DATA: ISM Services Still In Solid Shape Despite Unexpectedly Large Pullback
Dec-04 15:18
November's ISM Services index saw its biggest drop since June, falling unexpectedly to a 3-month low 52.1 from 56.0 (a more modest dip to 55.7 had been expected). The standout subcomponents were stagflationary in direction: while Employment (51.5, vs 53.0 expected/prior) and New Orders (53.7, vs 56.6 expected and 57.4 prior) fell, Prices Paid unexpectedly rose (58.2 vs 57.0 expected and 58.1 prior). But while the headline index represented a setback after four consecutive gains, and the subcomponents disappointed, overall the report still suggests that the Services sector is in solid shape.
- The Employment pullback will receive outsized attention as estimates for Friday's November Employment Report are fine-tuned, but even with the dip, the 51.5 reading was higher than in any single month in the 12 months before October, suggesting continued resilience in hiring.
- Likewise, the Prices Paid were simply typical of levels seen in over the last several months, rather than any sign of significant inflationary reacceleration.
- Business activity slipped to 53.7 (from 57.2 prior), a 5th month of expansion following June's contraction.
- The New Orders drop reverses the jump to very elevated levels the prior two months (which averaged 58.4) but remain expansionary - though New Export orders were especially weak, falling 2.1 points to a 7-month low 49.6.
- Elsewhere, Inventories contracted (45.9) after 3 months of expansion, order backlogs remained in contraction for a 4th month (47.1), while Supplier Deliveries fell 6.9 points to 49.5 (per ISM: "the index was in contraction territory for the sixth time in 2024 — indicating faster supplier delivery performance").
- The November election and potential tariffs also get an anecdotal mention: "Generally, respondents’ comments were neutral to positive, and both positive and negative impacts were attributed to seasonality. Not surprisingly, election ramifications and tariffs were mentioned often, with cautionary outlooks related to the potential impact on respondents’ specific industries."
EURIBOR OPTIONS: Put spread buyer
Dec-04 15:16
ERH5 97.50/97.62ps 1x2, bought the 1 for 0 in 10k.
STIR: Only Modest Rally On ISM Services Miss
Dec-04 15:14
- Fed Funds implied rates have slipped on the weak ISM services report (52.1 vs cons 57.0 in Nov after 57.0 in Oct), but with sustained strength in prices paid helping offset weaker other components.
- Pricing for the Dec 18 FOMC decision is somewhat resilient, only back to recent lows seen after Monday’s dovish comments from Gov. Waller indicating a preference for another cut this month.
- Dec’24 and Jan’25 rates are 0.5-1bp lower post-release, building to a 3bp decline for the Jun’25.
- Cumulative cuts from 4.58% effective: 19bp Dec, 25bp Jan, 41bp Mar and 61bp Jun.
- Payrolls comes on Friday before US CPI on Wed whilst year-end positioning can also be at play.
