The manufacturing purchasing managers’ index of the Institute for Supply Management (ISM) has continued its decline in September, reaching 47.8%. The non-manufacturing ISM has registered a big drop of 3.8 percentage points and is now at 52.6% — a very low print for a non-recessionary period. Against this background, bond yields have declined significantly reflecting increasing worries about recession risk, rising expectations about additional Fed easing and a greater flight to safe havens. The labour market data for September however brought some relief. Nevertheless, we expect the Fed to continue to cut rates.
Although August industrial production and retail sales beat expectations, key data with respect to September have sent conflicting signals. Both the manufacturing and non-manufacturing ISM came in below expectations, creating a lot of nervousness in the run-up to the release of the all-important labour market data. They brought relief with 136.000 jobs having been added in September (versus a Bloomberg consensus of 145.000) and, in particular, an unemployment rate of 3.5%, which is well below the consensus of 3.7%...