ISM Non-Manufacturing PMI Exceeds Expectations, Traders Bet On A More Hawkish Fed

Key Insights

• ISM Non-Manufacturing PMI grew from 49.6 to 55.2, exceeding analyst expectations. 
• The final reading of the S&P 500 Global Services PMI has also exceeded analyst forecasts. 
• Treasury yields are moving higher as traders bet on a more hawkish Fed. 

Services PMI Gets Back Into Expansion Territory

On February 3, Institute for Supply Management released its Services PMI report, which indicated that Services PMI increased from 49.6 in December to 55.2 in January. Analysts expected that Services PMI would grow to 55.2. Services PMI moved back into expansion territory after a single month of contraction.

Earlier, traders had a chance to take a look at the final reading of the S&P 500 Global Services PMI report. The report showed that Services PMI improved from 44.7 in December to 46.8 in January, compared to analyst consensus of 46.6.

It should be noted that today’s Non Farm Payrolls report showed that the economy added 517,000 jobs in January, compared to analyst consensus of 185,000.

The better-than-expected reports indicated that the economy remained in a decent shape despite recession worries. The strong economic data provides Fed with an opportunity to be more hawkish in order to fight inflation.

U.S. Dollar Gains More Ground After ISM Report

U.S. Dollar Index tested new highs after the release of the ISM Non-Manufacturing PMI report. Treasury yields gained strong upside momentum as traders bet on a more hawkish Fed, which was bullish for the U.S. dollar.

Gold found itself under strong pressure as stronger dollar and higher Treasury yields are bearish for precious metals. Currently, gold is trying to settle below the $1870 level.

S&P 500 continued to rebound from session lows after the release of the ISM report. While hawkish Fed is bearish for stocks, some traders are willing to bet that stronger economy will offset the negative impact of higher interest rates.

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