Treasuries climbed and the dollar slumped after data showing anemic expansion of the service sector bolstered speculation the Federal Reserve will not increase interest rates later in the month. Fed Funds futures are now suggesting a 24% chance, down from over 55% last week.
The ISM non manufacturing index indicated service industries expanded in August at the weakest pace in six years. While this is a relatively immature data point that has a history of indicating false weakness/strength, because of Fed statements, broad based conclusions are made on every tier I statistic.
As indicated, the yield on the 10-year Treasury fell by 6 basis points or retraced half of August’s increase in yields. As noted last week, prices fell in the 10-year by the greatest amount since June 2015. Yields rose 13 basis points.
The dollar is now down about 5.1% for the year. Eight months ago consensus expected the dollar to continue its multiyear advance.
Crude closed nominally higher, the result of the decline dollar and speculation that something might happen at the month end OPEC meeting.
What will happen today?
Last night the foreign markets were mixed. London was up 0.09%, Paris up 0.26% and Frankfurt up 0.35%. China was up 0.04%, Japan down 0.41% and Hang Sang down 0.19%.
The Dow should open little changed. Crude is up 1% and the 10-year is unchanged
Chief Economic Strategist Managing Director
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