What to expect from the ISM manufacturing PMI report?

Back in January, the ISM Manufacturing PMI was pretty encouraging, as responders to the survey noted an increase in sales and more stable costs. Still, many noted a slowdown in new orders and continuously slow demand. 

The ISM Manufacturing PMI is divided into several subcomponents, some of which are closely watched by speculative interest. In January, the New Orders Index moved into expansion territory at 52.5, somehow suggesting an improving demand outlook. At the same time, the Prices Index registered 52.9, up 7.7 percentage points compared to the  December reading. The Price Index gauges the price change that US manufacturers pay for their inputs, and such an advance signaled heating price pressures. Finally, the Employment Index registered 47.1, down from December’s figure of 47.5.

Generally speaking, a headline reading above 50.0 should indicate above-expectations expansion and financial markets should welcome the positive news. As a result, high-yielding assets such as stocks may run higher, while the US Dollar may come under selling pressure amid risk appetite. Investors will also welcome signs of further expansion, such as an increase in the New Orders sub-component and easing price pressures. 

Regarding inflation, the US released the January Core Personal Consumption Expenditures (PCE) Price Index. The Bureau of Economic Analysis (BEA) reported the Federal Reserve’s (Fed)  favorite inflation gauge on Thursday, with the figures meeting market expectations. The Core PCE Price Index increased 0.4% MoM, doubling the previous 0.2% advance, while the annual rate printed at 2.8% easing from 2.9% in December.  

In line with expectations data barely moved the bar. Market participants continue to bet on a Fed’s rate cut in June, with the odds for a 25 basis points (bps) cut standing at around 52%, unchanged from pre-release levels.