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Market Roundup: Hawkish Forward Guidance Cools on PMI Services Miss

US TSYS
Tsys holding near midmorning highs at the moment, extending the overnight rally after weak US services sector PMI data followed contractionary reading in France and Germany overnight.
  • Early bid: Tsys surged after France and Germany mfg PMIs both missed expectations overnight, contractionary sub-50 reads at 49.6 and 49.2 respectively (UK mfg PMI bucked trend, coming out at 52.2 vs. 52.0 est).
  • Volumes spiked as Tsy futures furthered the rally (30YY 2.9477% low) after preliminary July reading of the SP Global mfg PMI of 52.3 vs. 52.0 exp (52.7 in June), service sector miss at 47.0 vs. 52.7 est (steady to June read).
  • Heavy first half volume w/ TYU2>1.2M, yield curves bull steepening off inverted lows: 2s10s +3.077 -18.372, 5s30s +6.124 at 11.753 as the forward rate hike expectations in latter half of the year cooled on the data. A 75bps hike is still expected next week while a 50bps move at the Sep policy meeting looks more likely.
  • Fed terminal rate now seen at 3.33%, from what had been seen at 3.69% after last week's US CPI beat.
  • Cross assets: Spot gold extends early gains +12.92 at 1731.73, crude makes modest gains: WTI +0.51 at 96.86.
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