Bullish ISM Data Sends US Treasury Yields and the Dollar Higher

The US dollar finally caught a break, as stronger than expected ISM Services and ADP Employment Change data was enough to force a long overdue Greenback rally. Earlier GBPUSD and EURUSD advances proved somewhat short-lived, with the morning?s fundamental data erasing the initial anti-dollar moves. The economic news was likewise enough to push bond yields higher, which further propped overall USD demand.

This morning?s ADP report printed a good deal better than expected, with the private employment data showing that non-governmental jobs gained by 150k through the month of June. Analysts forecast that the labor number would come in at a much more modest 100k additional hires, but the headline index came in at its highest levels since November, 2006. This is inarguably bullish for the dollar, as it predicts tomorrow?s Non-Farm Payrolls data will show a total of 175k new jobs based on the 12-month average of government hiring.
ISM Services numbers likewise fueled the sudden USD ascent, with the headline index coming in at its best in over a year. The breakdown of the report showed that the closely-monitored Employment index remained in bullish territory at 55.0 versus 54.9 previous. Given that the US Service Sector employs nearly 80 percent of the domestic workforce, the very modest uptick points to a solid outlook for overall hires. A Bloomberg News survey shows that markets expect tomorrow?s Non Farm Payrolls report to show that the country added an additional 125,000 jobs in June. Both the ADP numbers and ISM Services leave ample room for a positive surprise, however, lending to an overall US dollar bid.
Domestic equities did not share the Greenback?s optimism, with the three major indices modestly lower through most of the day?s trade. A slight rebound through the afternoon left the NASDAQ exactly unchanged at 2,644.95, but the Dow Jones lost 32 points to 13,544.86, while the broader S&P 500 shed 3.11 to 1,521.76. Volume was relatively light as many traders are away from their desks on a holiday-shortened week. But price action proved bearish as speculators feared that today?s rise in bond yields would lead to higher borrowing costs through the short-term. Notable market movers included bank shares, with Bank of America 49 cents lower at $49.09, while JP Morgan slipped 2.78 to $221.77. The tech-heavy NASDAQ index was buoyed by continued rallies in Apple Corp shares, however, with the stock 3.77 higher to $130 .95 at time of writing.
Fixed Income markets continued their recently choppy price action, as bond prices falling further against recent monthly highs. The US 10-year Treasury note shed an impressive 21/36 points in price to send yields 9 basis points higher to 5.12 percent. Traders blame the better-than-forecast ADP employment and ISM Services data on the tumbles in US Treasuries. The higher rates of return on debt issues may continue to boost the domestic currency against major world counterparts.