MACRO: US services PMI sinks into contraction territory

Following Thursday's weak readings of weekly jobless claims and  Philly Fed index, today even more disturbing data from the US economy were published. 

The S&P Global US Services PMI plunged to 47 in July from 52.7 in June, widely missing analysts’ estimates of 52.6 and reaching its lowest level since early stages of the pandemic. New export business decreased for the second successive month amid challenging economic conditions in key export destinations and new business returned to expansion at a much softer pace than that seen in the last two years. The rate of job creation was the weakest for five months as pressure on capacity subsided. Backlogs of work decreased at a faster pace, and one that was the sharpest since May 2020. On the price front, input prices rose markedly, albeit at the softest pace since January; and output charges softened the most since March 2021. Looking ahead, service providers signaled the lowest degree of confidence in the outlook for output since September 2020, according to Markit Economics

US Services PMI slid into contraction territory. Index dropped 4.8 pts to 47.0 weakest reading since May 2020. US Manufacturing PMI also edged lower to 52.3 in July from 52.7 in previous months, slightly above market projections of 52, Source: Bloomberg via ZeroHedge

Today's reading shows a significant contraction in the economy and suggests that a technical recession scenario is more and more likely. Now the market started to price-in an incomplete hike of 75 bp at the next Fed meeting and full rate-cut is  priced in for Q1 2023.  Given the worsening macroeconomic environment, investors' attention next week will focus heavily on GDP and core PCE readings.

The market expects a more dovish FED in 2023. Source: Bloomberg via ZeroHedge