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Firmly Richer And Steeper In Global Risk-Off, ISM Services In Spotlight

US TSYS
  • Treasuries have seen some large two-way trade in recent hours but on balance remain firmly richer and steeper on the day as large risk-off flows have been seen globally in reaction to Friday’s payrolls report.
  • Cash yields are currently 4-13bp lower, with the front end leading declines as Fed rate cut expectations surge further and even emergency cuts are considered – see the STIR section below.
  • 2s10s at -1bps probes its first non-negative reading since mid-2022.
  • TYU4 has seen the bull cycle remain firmly in play, at 114-19 (+ 14+) off an earlier high of 115-01+ amidst massive cumulative volumes of 1.2 million.
  • Next resistance is seen at 115-17 (Fibo projection) whilst the nature of the upswing means support isn’t seen until 112-21 (Aug 2 low).
  • ISM services takes on even greater importance than usual. Recall that June's ISM Services index came in far weaker than expected with the lowest reading (48.8) since early in the Covid pandemic in May 2020, whilst new orders plunged into contraction territory with its first sub-50 reading since Dec’22. The median analyst expectation is for a rebound in the headline index to 51.0. A failure to return to expansionary territory above 50.0 would add another notch to the recessionary scorecard, with confirmatory weakness in the underlying subindices (prices paid, employment, new orders) applying further pressure on the Fed to ease policy.
  • Data: S&P Global US Services/Comp PMI Jul final (0945ET), ISM Services Jul (1000ET)
  • Fed: Goolsee on CNBC (0830ET), SLOOS (1400ET), Daly moderated discussion (1700ET)
  • Bill issuance: US Tsy $76B 13W, $70B 26W Bill auctions (1130ET)
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