US purchasing managers’ indices (PMIs) have been sliding since August 2018, albeit from elevated levels. After reaching a cyclical peak in September 2017, manufacturing PMI readings went sideways for a year before they started a downtrend. The latest reading has not done anything to end this.
US manufacturing activity slowed in May to a level last seen in late 2016. According to the latest Institute of Supply Management (ISM) survey, its Purchasing Managers Index recorded a reading of 52.1, down from April’s reading of 52.8 and below the market’s expected figure of 53.0. The average reading since 1948 is 52.9, so the latest reading is not far below the long-term average.
US bond yields finished the day considerably lower, especially at the short end, while market expectations of a rate cut were increased markedly. Whether this was purely the result of US domestic factors or, in part, a reaction to China’s “unreliable entities” list is debatable. In any event, by the end of the day, 2-year Treasury bond yields had plunged 11bps to 1.83%, the 10-year yield dropped by 6bps to 2.07% while 30-year yields were 4bps lower at 2.53%. The probability of a July rate cut implied by federal funds futures increased from 53% to 63%, up from 31% at the start of May.