PMI Reports Show Inflation Remains A Serious Problem

Key Insights

• Manufacturing PMI increased from 46.2 to 46.8.
• Services PMI grew from 44.7 to 46.6.
• The commentary indicated that rising prices remained a serious problem for businesses.

PMI Reports Exceeded Analyst Expectations

On January 24, U.S. released Flash Manufacturing PMI and Services PMI reports. Manufacturing PMI increased from 46.2 in December to 46.8 in January, compared to analyst consensus of 46. Services PMI improved from 44.7 to 46.6, compared to analyst consensus of 45. Numbers below 50 show contraction.

S&P 500 Global commented: “The fall in business activity softened to the slowest in three months, however, as manufacturers and service providers signalled moderations in their respective downturns.”

The report noted that higher wages and rising input prices continued to put pressure on businesses, which means that inflation remains a serious problem. This is a hawkish signal, although the report should not change the market consensus on the federal funds rate, which is expected to be raised by 25 bps at the next meeting.

U.S. Dollar Gains Ground After PMI Data

U.S. Dollar Index moved above the 102.40 level after the release of PMI reports. Traders focused on the commentary, which indicated that rising prices put material pressure on business activity. At this point, traders are not ready to bet on a more hawkish Fed, but the report may push the American currency away from multi-month lows.

Treasury yields have also moved higher after the release of PMI data, although it looks that bond traders are not ready for big moves.

Gold found itself under significant pressure and moved towards the $1920 level as traders focused on stronger dollar and rising Treasury yields.

S&P 500 made an attempt to rebound from session lows but lost momentum and pulled back below the 4000 level.

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