FXStreet (Guatemala) – James Knightley, analyst at ING Bank explained that the headline index of the US ISM manufacturing index has plunged into contraction territory for the first time since a one-off blip in November 2012 and is now at its weakest level since June 2009.
Key Quotes:
“Following some disappointing regional surveys we had suggested that this was a clear threat and it underlines the problems for a sector that is being pressurised by dollar strength and weakness in demand, particularly emerging markets. The headline figure of 48.6 was down from 50.1 previously, while the consensus expectation was 50.5.”
“In terms of the details, both production and new orders dropped below the break even 50 level while, remarkably, the employment component somehow managed to rise to 51.3 from 47.6. However, given the mismatch between last month’s payrolls figure and the ISM employment component, we aren’t putting too much weight on it.”
“Overall, the report is likely to make some Fed voters wary about hiking rates later this month, but on balance we still think that is what the outcome will be. The services sector dwarfs manufacturing and is performing well while the economy is creating jobs, wages are starting to rise and core inflation pressures are building. As last year’s drop in energy prices fall out of the annual comparison, headline inflation should swiftly start to rise. We think there is enough to convince a majority of voters to opt for a hike, particularly if Friday’s jobs report posts respectable gains, as we expect.”
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