US: Republican Senator-If Market Rout Continues 'We'll Have To Recalibrate'
Speaking on Fox, US Senator John Kennedy (R-LA) says, regarding the current financial market selloff, "I'm not going to bubble-wrap it - what's happening is not good...Now, will it continue? Will we find the bottom, and then it will start to go back up? I hope so. But if it doesn't, we'll have to recalibrate."
- Comments from several Republican senators and House members have seemed to imply the tariffs will be used as a tool to garner concessions from other countries (a view possibly aided by President Trump's latest comments on talks w/Vietnam, see 'TARIFFS: Trump Hints @ Vietnam Tariff Deal, Bessent 'Quietly' Moderating Tariffs', 1619BST).
- A short time ago, Burgess Everett at Semafor posted on X: "Senate Majority Whip Barrasso [R-WY] says Treasury Secretary Bessent told Republicans about tariffs that “Unless there is retaliation, these would be the high level mark, with the ultimate goal of getting them reduced”.
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GILTS: Lower Following U.S. ISM Data, Key Support In Futures Pierced
Gilts sell off again following the U.S. ISM services survey.
- Key support at 91.79 pierced as the contract bases at 91.74, before recovering to ~91.80. Fresh extension lower would target Fibonacci support at 91.27.
- Yields 8-14bp higher, 10s lead the move, with the next point of upside interest in that benchmark located at the Jan 20 high (4.704%).
STIR: ISM Services Unwinds Dovish ADP Employment Move
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.
US DATA: Highest ISM Services Employment In Three Years
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.
