Soft ISM data sends dollar lower; stocks advance

The dollar slumped on Tuesday after data on the US services sector fell well short of expectations, while a gauge of global equity markets held near a one-year high.

The Institute for Supply Management said its index of non-manufacturing activity fell to 51.4, its lowest level since February 2010, from 55.5 the month before and well shy of the 55 estimate. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of US economic activity.

Stocks on Wall Street briefly turned negative in the wake of the data and MSCI’s index of world shares pared gains before rebounding to last trade at 424.16, its highest level since August 10, 2015.

The dollar softened considerably, down 1 per cent against a basket of major currencies, with the greenback on track for its biggest drop since late July.

The services sector report diminished expectations for a rate hike by the US Federal Reserve in September, with the odds of a rate hike this month now at 18 per cent, versus 21 per cent on in the prior session, according to CME’s FedWatch tool. Expectations for December have also decreased to just above 50 per cent.

Comments from several Fed officials in recent weeks had increased the probability for a rate hike this year, but expectations have declined since Friday’s weaker-than-anticipated US payrolls report.

The Fed is “not getting support from data for a rate increase, and so we’re seeing the market creep a little higher today,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

The Dow Jones industrial average rose 46.37 points, or 0.25 per cent, to 18,538.33, the S&P 500 gained 6.5 points, or 0.3 per cent, to 2,186.48 and the Nasdaq Composite added 26.01 points, or 0.5 per cent, to 5,275.91.

Stocks in Europe also pulled back after the data, with the FTSEurofirst 300 closing down 0.4 per cent, although MSCI’s index of world shares was last up 0.7 per cent.

Benchmark 10-year US Treasury yields sunk to a two-week low of 1.534, and were last yielding 1.5425 per cent, up 16/32 in price.

The disappointing data helped lift spot gold more nearly 2 per cent to $1,349.01 an ounce, after touching a high $1,351.84.60 an ounce, its highest level since August 19.

But despite the weaker dollar and low expectations for a rate hike this month, oil prices were mixed in volatile trade. Brent settled down 0.8 per cent at $47.26, while US crude settled up 0.9 per cent $44.83 as hopes for quick action by producers to tackle a global supply glut faded.

Oil prices had jumped earlier after Saudi Arabia and Russia had agreed on Monday to cooperate in world oil markets, saying they will not act immediately but could limit output in the future.

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