Fade the ISM Hysieria

QI TAKEAWAY Sequentially good fundamental news from the U.S. and China continued to push Fed terminal rate expectations higher at the start of March. Notable second-half optimism was also messaged in the ISM manufacturing report. We suggest taking a broader view of the deflationary inventory cycle when assess

  1. ISM Mfg New Orders rose 4.5 points MoM in February, the largest jump in 28 months, helping push Fed terminal rate expectations to 5.47% vs. 5.42% on Tuesday’s close; also surprising to the upside was the report’s Pricing Index, printing at 51.3 vs. 46.5 consensus
  2. February marked the third and fourth straight months of contraction, respectively, for ISM and S&P Global’s Mfg Production indices; driving the weakness is oversupply, with ISM’s Customer Inventories ‘Too High’ stagnant at 18.4, a level consistent with recession
  3. S&P Global’s Commodity Price & Supply Indicators report showed commodity shortages at their least acute levels in 29 months, verifying a pullback in demand; at the same time, commodity price pressures were flat in February, at some of the lowest levels in 2.5 years