ISM Services Sees Strongest Growth in Eight Months

Yields rise as services data show strong growth. Treasury yields declined ~3 bps overnight but reversed course this morning on private payrolls data that showed 42k jobs added in October, a bullish sign after declines in the two months prior. The move accelerated after ISM services data showed that the US services sector expanded quicker than expected in October, with yields ~4 bps higher in the aftermath. The 2-year yield ultimately closed 5 bps higher at 3.63% and the 10-year yield 7 bps higher at 4.16%. Meanwhile, equities rebounded after sliding yesterday on AI valuation worries, with the S&P 500 and NASDAQ rising 0.37% and 0.65%, respectively.

US services sector expands at fastest pace in eight months. The ISM services index rose to 52.4 in October, above expectations of 50.8 and rebounding from 50 in September, a level that signals stagnation. 11 out of 17 services industries expanded last month, led by growth in accommodation and food services, alongside retail trade and wholesale trade. Growth was driven by a surge in new orders, which climbed to 56.4 from 50.4 in the prior month, marking a one-year high. Meanwhile, prices continued to increase, with the prices paid gauge hitting 70, up from 69.4 in September. Inflationary pressures from tariffs remain top-of-mind, as Steve Miller, the chair of the ISM Services Business Survey Committee, said, “Respondents continued to mention the impact of tariffs on prices paid.”

Supreme Court justices express skepticism on Trump tariff authority. Oral arguments were heard today in the case brought by democratic states and small businesses against the Trump Administration’s sweeping tariff policies. Conservative justices expressed skepticism of Trump having broad authority to impose import duties, suggesting the Court may be inclined to uphold the lower court ruling that struck down the tariffs. The Department of Justice argues the President has broad economic authority during times of emergency, thereby allowing country-wide tariffs such as the ones Trump imposed on ‘Liberation Day’ in April. If the Supreme Court rules against the President, he would no longer have unbounded tariff authority, but would still have widespread power under other acts. A ruling from the Supreme Court may take weeks or months, but if the levies are struck down, it could result in the government having to refund some $100 billion in tariff revenue collected over recent months, and would also likely propel many countries to renegotiate their trade agreements with the US.