ISM Manufacturing Prices
ISM Manufacturing data was released yesterday, printing at 47.7. A value under 50 shows contraction, whilst values above 50 are expansionary. There is concern over one component of the data - ISM Manufacturing Prices. This ticked higher at 51.3 (blue circle). This is a big jump from the previous 44.5 and is much higher than the 45.5 expected.
The reading above 50 shows that the price component is increasing. This is a worrying sign given the current inflationary environment. It measures the price changes of raw materials and supplies used in manufacturing and is based on a survey asking respondents whether they experienced price increases, decreases or no changes.
Real Rate and USDOLLAR Reaction
We consider the hourly chart of the US 10-year real rate (top). On the ISM Manufacturing Prices release, the real rate jumped up (red arrow), and moved in a northeasterly direction. The market repriced yields because the upturn in prices will worry the Fed, especially given that the expectations were for a sub-50 release.
The FXCM's USDOLLAR basket (bottom) followed the real rate up. This is not surprising as it's currently strongly correlated with real rates. The dollar is a haven and any sign of an increase in risk will drive capital towards the greenback.
Fed Chair Powell previously said that the disinflationary process has begun and its "begun in the goods sector". However, given this uptick it is worth remembering that he also said that "it has a long way to go."
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.