Services PMI Rises To 51.4 In December, Exceeding Expectations

Key Insights

• Services PMI increased from 50.8 in November to 51.4 in December. 
• Composite PMI improved from 50.7 to 50.9.
• The strong services sector provides significant support to U.S. economy.

On January 4, S&P Global released the final reading of Services PMI report for December. The report indicated that Services PMI improved from 50.8 in November to 51.4 in December, compared to analyst consensus of 51.3. Numbers above 50 show expansion.

Composite PMI increased from 50.7 in November to 50.9 in December. The U.S. manufacturing sector remains in the contraction territory, but the strong performance of the services sector provides sufficient support to the economy.

S&P Global commented: “Some support to financial services in particular is coming from the recent loosening of financial conditions amid growing hopes of interest rate cuts in 2024 […] With sticky service sector inflation being a key area of concern among Fed policymakers, the slower rate of price increase in December is welcome news.”

U.S. Dollar Index settled near the 102.50 level after the release of Services PMI report. Treasury yields continue to move higher as bond traders reduce their bets on dovish Fed after the release of FOMC Minutes and the hawkish comments from Fed’s Barkin. Rising Treasury yields provide additional support to U.S. dollar, and the strength of the services sector may also serve as a bullish catalyst for the American currency.

Gold is trying to settle below the $2040 level as traders focus on rising Treasury yields. It remains to be seen whether Services PMI data will have a material impact on gold markets.

SP500 is mostly flat as the market is trying to stabilize after the recent pullback. Fed policy outlook will remain the key catalyst for equity markets in the near term.

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