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US services sector activity sees biggest drawdown in over 4 years: Gold rises, dollar falls as investors boost interest rate cut bets

Posted on by darion

Business sentiment in the U.S. service sector deteriorated sharply in June, a result that fell far short of economic estimates and indicated that economic growth had slowed significantly toward the end of the last quarter.

The Purchasing Managers’ Index for the services sector, measured by the Institute for Supply Management (ISM), recorded its biggest recession since May 2020.

June ISM Services PMI Report: Highlights

  • The ISM Services PMI fell to 48.8% in June from 53.8%, well below market expectations of 52.5%, as monitored by Econoday.
  • The business activity sub-index fell from 61.2% to 49.6% in June.
  • The New Orders subindex entered recession after 17 consecutive months of expansion, falling from 54.1% in May to 47.3% in June, below expectations of 53.6%.
  • The prices paid sub-index fell from 58.1% to 56.3%, slightly below the forecast of 56.7%, indicating a slight improvement in input prices paid by service providers.
  • The employment sub-index contracted at a faster pace compared with May, falling from 47.1% to 46.1%, falling short of the expected 49%.

Chart: Services sector activity falls sharpest since May 2020

“The decline in the combined indicator in June is the result of significantly lower business activity, a decline in new orders for the second time since May 2020 and a further decline in employment.” Steve Millersaid the chairman of the ISM Service Enterprises Research Committee.

Miller stressed that survey respondents are reporting stagnant or worsening business conditions, and while pricing pressures are easing, “some goods are seeing significantly higher costs.”

Respondents also indicated that weaker supplier delivery performance was due to transportation issues rather than increased demand.

Also read: Private employers added 150,000 jobs in June, fewer than expected: Job growth ‘solid but not broad’-Based on’

Market reaction: stocks hold gains, bond yields rise again

The U.S. stock market rose on a bleak ISM Services PMI report, bond yields fell sharply and the dollar weakened as investors increased their bets on upcoming Fed rate cuts.

  • The S&P 500 Index, tracked by SPDR S&P 500 ETF Fund (NYSE:SPY) was up 0.2% at 10:15 a.m. in New York.
  • Technologically heavy Invesco QQQ Fund (NASDAQ:QQQ) rose 0.2%.
  • Blue chip SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was unchanged.
  • Long-term Treasury yields fell sharply, with the 30-year yield falling 9 basis points to 4.52%, pushing up iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) up 1.4%.
  • The US dollar fell and Invesco DB USD Index Bullish Fund (NYSE:UUP), down 0.5%.
  • Gold, as the data shows SPDR Gold Trust Fund (NYSE:GLD) rose 1.5%.

Read more:

  • Goldman Sachs: 10 Reasons Equity Risk Will Rise in H2 2024

Photo: Shutterstock