ISM surveys points to much higher inflation

Partly due to base effects

Chart of the Day


There were more signs of inflationary pressures building yesterday, with the prices paid component of the services ISM jumping in February, even as the business activity index dropped back. The last time an average of the ISM prices paid components was this high, inflation jumped to around 5%. We know inflation will rise due to base effects from falls in commodities prices when the pandemic struck, the question is how much of that rise will be sustained.


Ahead of the US non-farm payrolls report on Friday, the ADP employment report showed an increase of just 117,000, suggesting the labor market is still struggling.

A weighted average of the ISM employment indices is currently 53.0, though, which points to better outcomes soon.

The weekly EIA report showed a big jump in crude stocks and big fall in gasoline stocks, as the severe weather in Texas caused oil refinery utilization rate to drop sharply.


The Nasdaq suffered again yesterday - moves in stock markets ranged from a fall of 2.7% for the US Nasdaq to a rise of 2.7% for the HK Hang Seng.

Its now the lowest since the start of the year.

There wasn’t much of an upward move in real yields to drive that move, though markets may still be reacting to the big move last week.

After all, precious metals also fell. Moves in the past week range from a fall of 6.0% for palladium to a fall of 0.9% for silver.

Corporate bond yields have started to rise - unusually with investment-grade rising by more than high yield.

Weaker stock markets have been accompanied by lower call volumes. The 5-day average of US equity calls outstanding has fallen by 19.7% in the past week, while the 5-day average of puts outstanding has fallen by 10.7%.

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