Summary:
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ISM manufacturing index 59.8 vs 60.0 exp
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Respondents still “overwhelmingly concerned” about tariffs
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USD higher on the day; TNOTE positioning extremely short
The latest look at the US manufacturing sector has shown a little pullback in the pace of growth but it still remains at elevated levels compared to recent history and other regions. The ISM PMI for September fell back to 59.8 compared to a forecast reading of 60.0 with the previous reading being a multi-year high of 61.3. Looking at other parts of the report, the new orders (61.8 vs 65.1 prior) and prices paid (66.9 vs 72.1 prior) both pulled back fairly significantly with the latter coming in at its lowest level since November 2017. One bright spot however was the employment reading which rose to its highest since February at 58.8, up from 65.1 previously.
Even after today’s dip the ISM remains high compared to recent history and there’s a notable divergence opening up above the manufacturing PMI. Source: XTB Macrobond
Some of the responses flagged up concerns surrounding tariffs with one on Computer & Electronic products particularly noteworthy:
"The market is in a state of chaos with the latest round of tariffs. As an electronics original equipment manufacturer, our component prices have been impacted almost across the board. The tariffs have caused a mass rush to buy up inventories of affected products in order to minimize the long-term financial impact. This, in turn, is causing market constraints, which further drive up the cost and increase lead times."
Compared to its peers the US PMI composite remains at relatively high levels. Note that the global ex US, and developed PMIs have dropped in recent months while the US is still near its highs. Source: XTB Macrobond
The latest COT data reveals some interesting developments for the TNOTE with short positioning in the 10-year US government bond hitting over 750k contracts - its highest level on record. That’s speculators’ biggest short position since CFTC began compiling the data in 1995. It’s the sixth week in seven they have increased it, and the rise of around 400,000 contracts in July-September is the second biggest quarterly change on record. Almost the entire short position, some 672,650 contracts, has been accumulated over the course of this year, putting 2018 well on track to be funds’ most bearish year for Treasuries since at least 1995.
Speculators are increasing their short bets on the TNOTE according to the latest COT report. Almost all these shorts have been placed this year as managed money is getting increasingly bearish on this market. Source: Reuters
The TNOTE bounced from prior support around 118.33 last week and this could now be seen as a key level. Given the extreme level of shorts in the market and positive moves could lead to short covering which may exacerbate a rally if these lows can hold. Source: xStation
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