Investment Clock insights

ISM services index disappoints

Ian Kernohan

6 September 2016

The latest Institute for Supply Management (ISM) Services release will no doubt push down the market implied probability of a September Fed hike. This could in turn mean they won’t hike, wanting to avoid shocking the market.

On the ISM itself, the decline was driven by fewer firms reporting stronger activity and an increase in firms seeing business conditions as unchanged.  The number of firms reporting lower activity rose only a little, and this series would have to move up a lot for us to become concerned that the US economy was in a clear slowdown. 

With the latest business surveys for the UK surprising to the upside and vice versa for the US, sterling has moved up against the dollar. Looking further out we see three potential factors which will drive sterling back down – further policy easing by the Bank of England (they will not want to see sterling too strong), a reminder of the UK’s large current account deficit (due at the end of this month), and ongoing Brexit uncertainty. The story that the immediate economic impact of the referendum was not as bad as initially feared, will, I believe soon be well reflected in the price.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.