ISM Non-Manufacturing PMI Missed Expectations, Boosting Hopes For A Less Hawkish Fed

Key Insights

• ISM Non-Manufacturing PMI declined to 49.6 in December, indicating that the services segment of the economy found itself under pressure. 
• Factory Orders decreased by 1.8% month-over-month in November. 
• The U.S. dollar retreated after the release of the ISM and Factory Orders reports as traders bet on a less hawkish Fed.

ISM Non-Manufacturing PMI Fell Into Contraction Territory

On January 6, U.S. reported that ISM Non-Manufacturing PMI declined from 56.5 in November to 49.6 in December, compared to analyst consensus of 55. Numbers below 50 show contraction.

ISM Non-Manufacturing PMI fell into contraction territory for the first time since May 2020, when the economy was under serious pressure amid coronavirus crisis.

Traders also had a chance to take a look at the Factory Orders report for November. The report indicated that Factory Orders declined by 1.8% month-over-month, compared to analyst consensus of -0.8%.

Earlier, traders focused on the surprisingly strong job data, which indicated that Unemployment Rate declined to 3.5%. While the job market remains tight, the ISM report and Factory Orders data show that the economy is slowing down.

S&P 500 Rebounds After ISM Report

S&P 500 gained upside momentum after the release of the ISM and Factory Orders reports. The weak economic data is bullish for the stock market as it decreases chances for aggressive rate hikes from the Fed. While the Fed indicates that it is ready to push the interest rate above the 5.0% level and keep it there until 2024, markets do not believe that it is a viable plan. The weak reports boost hopes for a less hawkish Fed.

U.S. dollar found itself under significant pressure, and the U.S. Dollar Index moved towards the 104.50 level. The yield of 10-year Treasuries moved to new lows at 3.62%. A less hawkish Fed is bearish for the American currency and bullish for U.S. government bonds.

Gold benefited from weaker dollar and lower Treasury yields and moved towards the $1860 level. Other precious metals also gained upside momentum.

For a look at all of today’s economic events, check out our economic calendar.