Elevated hopes for dovish Powell

The Dollar was unmoved by the leading indicators outcome and the better than forecast jobless claims, with the FX market remaining sidelined by Fed chair Powell’s Jackson Hole speech on Friday morning. EURUSD idles at 1.1095, as USDJPY hovers near 106.40. Meanwhile, the hawkish comments from George and Harker, and the better than expected claims and leaders data have weighed on Treasuries, while the weaker PMI data provided some brief support for bonds. The curve is back underwater, paced by the 2-year note which is up 2.6 bps at 1.600%, while the 10-year is 1 bp higher at 1.599%. The curve has flattened to 0.4 bps.

US flash August Markit manufacturing PMI fell 0.5 ticks to 49.9 after dipping 0.2 points to 50.4 in July. This is the lowest print since September 2009. The index was at 54.7 a year ago. New orders also dropped into contractionary territory at 49.5, the weakest since August 2009. The services index dropped 2.1 points to 50.9 in August, more than erasing the 1.5 point rise to 53.0 previously. It was 54.8 a year ago. The composite slid 1.7 points to 50.9 following the prior month’s 1.1 point gain to 52.6. It was at 54.7 last August.

There was an “overall decline in average cost burdens for the first time since the index began in October 2009,” and prices charged by private sector companies dropped for the first time in 3-1/2 years.

The weakening in the data, and the slump into contraction for the manufacturing index, will boost Treasuries as it supports more easing from the Fed.

Meanwhile, the US leading index bounced 0.5% to 112.2 in July, a fresh record high (first time with a 112 handle) after slipping 0.1% to 111.6 in June (revised from 111.5). Half of the 10 components that make up the index made positive contributions, led by building permits (0.23%) and jobless claims (0.16%), with solid gains in stock prices (0.14%), the leading credit index (0.14%) and average consumer expectations (0.12%). Four of the indicators made negative contributions, paced by ISM new orders (-0.1%). Consumer goods orders were unchanged.

Though the leading index is something of a misnomer, the data continue to support the view that the economy is pretty solid.


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Andria Pichidi

Market Analyst

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