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Services Lack Spark
The market made a move into positive territory on the release of the ISM services index which was somewhat encouraging as it showed a slight increase to 53.7 from 53.5 versus expectations that it stay flat. Despite the flat consensus estimate, I think the Street was braced for a dip given all the bad indicators lately in the global economy. The highlights of the report were slight increases in activity and new orders but I think there are a couple of key reasons why the market changed its tune shortly after the release:
• Employment component slipped to 50.8 from 54.2 (just barely above the 50.0 growth/contraction threshold).
By the way, Markit sent out various world services and composite (manufacturing and service together) indexes today. All together, it culminated with the Global Composite PMI which for May registered a 52.1, down from 52.3. I suppose it could have been worse, but it only illustrates that the world is shuffling slowly closer to the cliff edge. If not for the relative outperformance of the USA (which accounts for 28.1% of global activity in the index) this would have been even worse.
Now that we know that awaited G7 phone call was a dud today, the ball looks to be in Ben Bernanke's court when he speaks on Thursday. This man has the power to shake up the world markets with cheap dollar policy which is frankly a bit scary but also a reality in the current situation. The market is going to be listening very closely to what he says, as well as to the various other Fed officials who speak later today and tomorrow.
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