US DATA: Jump In ISM Services Prices Paid Amid Tariff Concerns
Jan-07 15:32
December's ISM Services survey was largely in line with expectations, with one notable exception: a sharp rise in Prices Paid.
- The headline index strengthened to 54.1, a little higher than the 53.5 expected (52.1 prior), with New Orders (54.2, 53.7 prior) and Employment (51.4, 51.5 prior) exactly matching survey expectations. But Prices Paid soared to 64.4 (57.5 expected, 58.2 prior), jumping by the most since January to the highest level in 22 months. In contrast, the headline index, new orders, employment, and new export orders indices remain below their October levels.
- We should note that the reports around the turn of the year tend to be volatile and prone to reversals in the subsequent month. In Dec 2023 for example, the report was very poor with an employment reading consistent with recession - but then January's showed a strong rebound with the strongest monthly increase in prices paid since 2012. As such we would take the upside surprise there with a grain of salt.
- However the report contains several mentions of tariffs, as both a driver of uncertainty/price concerns, as well as higher activity: "Some of the increased business activity seems to have been driven by preparation for demand in the new year, or risk management for impacts from ports strikes and potential tariffs. There was general optimism expressed across many industries, but tariff concerns elicited the most panelist comments."
- Respondents cited "receiving orders for next cycle earlier than usual”; “More activity around possible higher tariffs impacting the supply chain"; “Getting in front of tariffs”; “Ocean freight is starting to have a backlog of container shipments.”
- Note the December ISM Manufacturing survey's Prices Paid index rose more than expected to 52.5 (50.3 prior, 51.8 survey), a 4-month high. Though this wasn't particularly elevated in the broader context, it could be interpreted as a further sign that inflation pressures have bottomed out - confirmation of the rise in ISM Services Prices Paid in future surveys would be concerning from this perspective.
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MNI UST Issuance Deep Dive: Dec 2024 (2/2)
Dec-06 21:53
Throughout November’s policy and market volatility, though, Treasury auctions largely impressed, with 5 of 7 nominal coupon sales trading through.
- Auction Results: November’s nominal coupon auctions were generally strong, with five out of seven auctions trading-through, of which four saw a positive reading on MNI’s Relative Strength Indicator (RSI). The remaining two auctions; 3 and 20-year auctions tailed. See page 2.
- Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen). December is set to see $15B in nominal Treasury coupon sales, in addition to $22B in 5Y TIPS and $28B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
- MNI's review includes a calendar of upcoming auctions and buyback operations.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024 (1/2)
Dec-06 21:51
MNI's latest US Treasury Issuance Deep Dive has just been published (PDF link here):
November proved a dramatic month for Treasuries. Yields were volatile before and after the Nov 5 election - after ending October at 4.28%, 10Y yields peaked at five-and-a-half-month high just above 4.50% mid-month before closing November just below 4.18%, as markets attempted to price in the implications of a Republican “sweep”.
- Also buffeting rates was speculation over the would-be successor to Treasury Secretary Yellen. President-elect Trump’s selection of hedge fund manager Scott Bessent was greeted with bull flattening in the curve, implying perhaps that he’s seen as more cautious on fiscal deficits than some of the alternatives (he has expressed support for halving the annual budget shortfall to 3% of GDP).
- The first quarterly Refunding process of Bessent’s Treasury is in early February, by which point we may start to have a better sense of the incoming administration’s approach to both fiscal policy and to more issuance-specific considerations such as duration management.
- Bessent for instance has argued that Yellen’s Treasury erred from a risk management perspective by boosting short-duration issuance, and there are suggestions he would be in favor of reversing course, telling Bloomberg in June “When rates are very low, you should extend duration…I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”
US LABOR MARKET: MNI US Employment Insight: Soft Enough To Keep Fed Cutting
Dec-06 21:05
Our latest Employment Insight has just been published and emailed to subscribers.
