What has modified after yesterday’s US knowledge?

Yesterday we got some notable misses in the US Jobless Claims and the US ISM Services PMI. Intial Claims remain pretty much stable around cycle lows and inside the 200K-250K range created since 2022.

This shows that layoffs are not accelerating and remain at low levels, which is also something that we’ve seen from the US Job Openings report (although it doesn’t incorporate the latest pickup in claims). I don’t think the market will fret about Initial Claims too much until we see a new cycle high.

The Continuing Claims, on the other hand, have been rising steadily in the past weeks and recently printed a new cycle high.This has been the trend for quite some time as the labour market continues to rebalance via less jobs availability rather than more layoffs. Nonetheless, this is something to keep an eye on in this part of the cycle.

The US ISM Services PMI missed expectations by a big margin coming in at 48.8, which was much lower than even the lowest estimates. The survey though has been unreliable and very volatile lately. Just 15 minutes before the release, we got the final S&P Global US Services PMI reading and it showed an even better picture than the preliminary print.

That’s a huge divergence and besides the construction of the surveys, I don’t know what could be the culprit. The only two standouts in the ISM report was the headline number printing a new cycle low and the New Orders Index falling into contraction for the first time since 2022.

Of course, we shouldn’t cast aside the ISM report completely, but it’s hard to trust it. Moreover, one bad print doesn’t make a trend and we already saw it tumbling to 49.4 in April just to jump back to 53.8 in May.

The market seems to have interpreted the data in the same way as the interest rates expectations remained roughly unchanged with the pricing now seeing 47.8 bps of easing by year-end. Overall, the data just reinforced the view that the disinflationary trend is likely to continue and there are much higher chances of getting the Fed to cut 2 times this year rather than getting no cuts at all or even a hike.