Weak ISM-Services Quells Market Enthusiasm: Aug. 5, 2025

Stocks are paring some of yesterday’s strong gains as this morning’s ISM-Services signaled a lighter demand environment amidst firm price pressures. Treasuries are also taking losses in bear flattening fashion led by the short-end, as heavier inflation expectations quell Fed rate cut expectations and drive the yield curve north. Meanwhile, tariff tension imposed by President Trump on semiconductors, pharmaceutical equipment and on Moscow and New Delhi specifically, are also generating some hesitation in markets during this weak seasonal period. Indeed, equites across most sectors are facing selling pressure, fixed-income instruments along the maturity structure are seeing loftier borrowing costs, bitcoin is experiencing weaker price trends and cyclical commodities ex natural gas are trading lower. Conversely, volatility protection instruments, forecast contracts and the greenback are catching bids, while the gold and silver metals also see buying interest due to their defensive characteristics.

Services Sector Stalls in July

Economic activity in the services sectors decelerated last month according to this morning’s Purchasing Managers’ Index (PMI) from the Institute for Supply Management (ISM). The 50.1 headline score barely exceeded the contraction-expansion threshold at 50 and descended from June’s 50.8. Additionally, the figure missed the median estimate of 51.5 as payroll roster contractions, weak production and sluggish transactions hampered results. But the prices paid component accelerated from 67.5 to 69.9.

Strong Showings at Auctions Could Quell Yields

On a relatively uneventful week from an economic data standpoint, Treasury auctions have the potential to materially influence markets in the days ahead. Indeed, softer borrowing costs are part of the reason why risk assets have rebounded strongly recently, as improved liquidity prospects have bolstered investor sentiment. Meanwhile, term premiums, which quantify the extent to which market participants are worried about fiscal deficit dynamics, have been quite elevated. But strong showings at offerings today, tomorrow and Thursday can quell those concerns, as predicants can remain confident that there are plenty of investors happy to finance the US government at current yield levels.

International Roundup

Euro Area PPI Climbs in June

Euro area Producer Price Index (PPI) increased 0.8% month over month (m/m) in June 2025. Annually, the PPI increased 0.6% year over year (y/y), beating expectations of 0.5%.

South Korea’s Inflation Cools in July

South Korea’s Consumer Price Index (CPI) rose 2.1% year over year (y/y) in July according to the Ministry of Economy and Finance, arriving in-line with expectations and cooling from June’s 2.2%. Increases were observed in miscellaneous goods & services (+4.3%), food & non-alcoholic beverages (+3.5%), household furnishings and maintenance (+3.4%), restaurants/ hotels (+3.2%), and education (+2.6%).

Singapore’s PMI Expands Past Forecasts

The July reading for Singapore’s S&P PMI beat market expectations. The print revealed that the PMI increased to 52.7, beating the forecasted figure of 51.3 and the previous month’s 51.0. The score signals a strong expansion in the Singaporean manufacturing sector.

Singapore Retail Sales See Annual Growth, Monthly Contraction in June

Singapore’s total retail sales increased by 2.3% y/y in June according to the Singapore Department of Statistics. Annual gains were observed in Motor Vehicles (+14.6%), Computer & Telecommunications Equipment (+7.3%), Optical Goods & Books (+5.9%), and Recreational Goods (+5.6%) amongst others. Annual losses were observed in Petrol Service Stations (-5.9%), Food & Alcohol (-5.2%), and Mini-marts & Convenience Stores (-2.6%). On a monthly basis, retail activity fell by 1.2% in June, opposed to a 1% gain in the previous period.

Hong Kong Private Sector Contraction Eases in July

The July reading for Hong Kong’s S&P PMI rose to 49.2 in July 2025. This marks the highest reading in six months. Although this score suggests a private sector contraction, the pace of decline was the gentlest in a while. The milder deterioration reflected slower declines in both output and total new orders, though foreign demand, particularly from Mainland China, continued to fall sharply.

Services Weigh on Australian Household Spending

Australian household spending saw an increase of 0.5% m/m in June, according to the Australian Bureau of Statistics. While this was half the growth observed in May and below analysts’ predictions, it was driven by a rise in goods spending, particularly for food, new vehicles, and electronics. However, this was partially offset by a 0.5% decrease in spending on services, with consumers reducing expenditures on air travel and health services. Despite the monthly slowdown, the annual pace of spending growth reached 4.8%, the fastest since early 2024. This suggests that lower borrowing costs and higher real incomes are having a positive impact on the broader economy.

China’s Caixin PMIs Show Mixed Signals in July

China’s private sector saw slower expansion in July, according to the Caixin Composite PMI, which dipped to 50.8 from June’s three-month high of 51.3. This growth was primarily driven by the services sector, as manufacturing output contracted during the month, says an S&P Global press release. The Caixin Services PMI reached a 14-month high of 52.6, while the Manufacturing PMI unexpectedly dropped to 49.5, marking a contraction for the second time in three months. This manufacturing slowdown was mainly attributed to a sharp decrease in new export orders amid global trade uncertainty. Despite the slowdown in overall private sector activity, business sentiment improved slightly, driven by the services sector’s performance and hopes for better economic conditions and promotional efforts to boost sales. However, concerns remain about a potential slowdown in the second half of the year as export momentum weakens and consumer confidence remains subdued.

Canada’s Trade Deficit Broadens

Canada released a trade deficit of C$5.9 billion in June, according to Statistics Canada. This figure arrived near market expectations of C$5.8 billion but was heavier than the prior month’s C$5.5 billion.