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Strong ISM services data indicates robust US business activity

June 6, 2024

Key points:

  • ISM services report shows higher business activity and faster new orders growth.
  • The US dollar sees a slight recovery but remains under pressure ahead of Friday’s NFP report

The latest Institute for Supply Management (ISM) services report revealed a surge in US business activity, surpassing market expectations. This positive data is reflective of an increase in business activity and new orders growth, suggesting a thriving service sector.

However, the report also pointed out ongoing challenges, including slower supplier deliveries and continued contraction in employment. Businesses are finding it difficult to backfill positions and manage labor costs, while inflation and current interest rates remain hurdles to further improvement.

Recovery of the dollar index

Following the strong ISM data, the US dollar experienced a slight recovery. However, the greenback continues to face pressure, particularly with the highly anticipated Non-Farm Payrolls (NFP) report due on Friday.

The dollar index had previously declined after reaching a two-week high last Thursday, influenced by better-than-expected US inflation data, a weak Chicago PMI, and disappointing JOLTs and ADP jobs reports.

Currently, the dollar index is below all three simple moving averages, with near-term resistance from the 200-day SMA, a recent uptrend, and the 38.2% Fibonacci retracement level.

Forex chart showing USDX trading activity with moving averages (5, 10, 20, 30) and MACD indicator. The dollar index is currently below all three simple moving averages, facing near-term resistance from the 200-day SMA, a recent uptrend, and the 38.2% Fibonacci retracement level. The article discusses how strong ISM services data indicates robust US business activity.

SEE: The US dollar index show downward trend after peaking last Thursday, seen on the VT Markets app.

The ISM services report highlighted higher business activity and faster new orders growth, indicating strong demand and a healthy economic environment. However, slower supplier deliveries reflect ongoing supply chain issues, potentially leading to increased costs and delays.

The report also noted continued contraction in employment, underscoring the challenges businesses face in filling positions and managing labor costs. Additionally, inflation and current interest rates persist as obstacles to business improvement.

The US dollar index has shown a downward trend after peaking last Thursday. Influences on this movement include better-than-expected US inflation data, which provided a temporary boost to the dollar, as well as weak Chicago PMI and disappointing jobs reports, which added downward pressure.

Key events such as Friday’s NFP report and the European Central Bank (ECB) policy decision could impact the dollar’s direction. The NFP report is vital, as further weakness in the US job market could push the dollar down.

In the ECB policy decision, President Lagarde is expected to announce a 25 basis point interest rate cut. Any indication of another cut in July could weaken the Euro, which comprises approximately 58% of the dollar index, potentially boosting the US dollar index.

Nvidia surges past Apple

In the stock market, Nvidia shares climbed over 5% to reach a record high of $1,224.40, pushing the company’s market cap above $3 trillion for the first time. This milestone has propelled Nvidia past Apple, making it the second-most-valuable company in the US, with Microsoft holding the top spot.

This surge was part of a broader rally in tech stocks on Wednesday, driven by softer US economic data and lower Treasury yields. Investors are hopeful that the Federal Reserve might cut interest rates in July, further fueling the tech sector’s gains.

You might be interested: Nvidia nears Apple in market cap as AI dominance drives growth

Nvidia’s role in artificial intelligence (AI) has been a major driver of its stock’s impressive performance, with a year-to-date gain of over 140% and a five-year increase of more than 3,300%.

Nvidia’s leadership in AI continues to strengthen, with CEO Jensen Huang announcing upcoming high-powered versions of the Blackwell chip and a new AI chip platform, Rubin, set for release between 2025 and 2027.

The company’s financial performance remains robust, with Q1 adjusted earnings per share of $6.12 and Q1 revenue of $26 billion, up 262% year-over-year. The data center segment generated $22.6 billion in revenue, accounting for 86% of total revenue and up 427% year-over-year. The gaming segment also performed well, with revenue of $2.6 billion.

Nvidia previously announced a 10-for-1 stock split on June 7 and increased its dividend from $0.04 to $0.10 per share.

Despite Nvidia’s dominance, competition is intensifying with AMD and Intel introducing new products to challenge Nvidia’s market position. Additionally, major customers like Amazon, Google, and Microsoft are working to reduce their reliance on Nvidia’s chips to cut capital expenditures.