ISM’s October Chicago Purchasing Managers Index was released at 9:45 AM, and the number surged to 65.9 from last month’s 55.7 reading. Economists were expecting it to decline slightly to 55.0.
The survey results suggest Midwest manufacturing is on fire, and gold and Treasuries are taking a hit on the release as investors price in chances that a tapering of the Federal Reserve’s quantitative easing program may be closer as a result.
10-year U.S. Treasury futures went negative after the release, and are now down 0.3%. The yield on the 10-year note is trading at 2.56%, two basis points higher from yesterday’s close.
Gold is trading at $US1323 an ounce, down 1.9%.
Meanwhile, the S&P 500 is trading at 1763, unchanged from yesterday’s close. The index fell as low as 1755 following the release of the Chicago PMI report.
“In its narrative the organisation says that businesses were ‘seemingly unaffected by the [government] shutdown’,” says Andrew Wilkinson, chief economic strategist at Miller Tabak. “In light of the Fed’s failure to draw additional attention to the impact of the fiscal showdown in Washington, that message is likely to resonate with investors.”
The chart below shows the drop in Treasury futures this morning on the right. The big decline on the left is the reaction to yesterday’s release of the October FOMC statement.
Yesterday, the FOMC statement failed to acknowledge the effects of the fiscal battles in Washington, D.C. on the American economy, something investors were hoping for to confirm the consensus view that the Fed would likely refrain from tapering down its quantitative easing program until March.
Now, the tapering timeline appears to be getting closer.
“The biggest concentration of probability now is that tapering begins in the January-March period versus March and beyond two days ago,” says Steven Englander. “So a good data point or two and there is plenty of room for asset markets to back up.”