What the market expected

Friday’s calendar looked dull. S&P Global’s flash manufacturing PMI was forecast at 54.0 against July’s 53.9, and services at 53.9 against 54.6, implying a marginal factory improvement and a mild services cooldown. Both landed together at 21:45 SGT.

What it got

The opposite, in both directions and by a wide margin. Services business activity jumped to 56.8, a 20-month high and the fastest expansion since December 2024, nearly three points clear of consensus. Manufacturing slipped to 53.2, missing by 0.8 and the weakest since March. The composite output index rose to 56.0 from 54.5, the strongest reading since April 2022, with S&P Global’s Chris Williamson putting third-quarter growth “approaching 3%” annualised against 1.5% in the second.

The split has a traceable cause. The factory output index fell to 51.9 from 53.9, a 13-month low, as the safety-stock building that had propped up goods production faded and supplier delivery times lengthened to one of the worst extents in four years on shipping disruption and tariffs. Manufacturers’ input purchases fell outright for the first time since February.

The price detail deserved more attention than it got. Input cost inflation ran at its slowest since February, and prices charged rose at the weakest pace since November, a ten-month low in services and a six-month low in manufacturing. Hiring was the fastest since the start of last year.

What it did

Less than the numbers deserved. The S&P 500 closed 0.43% higher at 7,674.37, the Nasdaq Composite 0.43% at 26,180.45, and the Dow 0.98% at 53,277.01. Treasury yields went the other way, the two-year adding five basis points to 4.24% and the ten-year almost three, to roughly 4.47%. The front end moved most, which is where a repricing of the Fed’s next step shows up first.

Yields rising on hot activity data is the textbook response from a Fed whose July minutes carried three dissents in favour of a hike. Faster growth pushes cuts further out, lifts the discount rate applied to future earnings, and compresses multiples. What kept equities from wearing it was the price side, since cooling selling prices are the one thing that lets strong output coexist with a patient central bank.

Attribution should stay modest. Friday was largely a bounce off a bond-driven rout that cost the Dow 700 points on Wednesday, and the leadership sat in financials and crypto-linked names, with Robinhood up almost 14% and Coinbase 8% on a 22% weekly move in bitcoin. The PMI was a supporting act.

PCE and Jackson Hole follow next week.

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