The preliminary US services PMI for July was released on Friday. It was the worst reading since 2009 (apart from a few months during the pandemic), with a figure of 47, indicating a contraction in activity.
The figure is well below the estimates and caused the US Dollar to drop against the Yen. At the same time, the treasury bond yields fell to the lowest levels in recent weeks, with the 10-year bond at 2.77%. In addition to raw materials prices, the Wall Street indices declined.
The bond market is signaling less fear of inflation and more fear of growth. Yields continue to fall sharply in a sign that bonds have seen enough gains to price in inflation with the growing possibility that a hard landing for the economy is looming.
Interest rates are expected to rise by 75 bps at this week's Federal Reserve meeting, although there are already voices pointing to a lower rise of only 50 bps.
Friday's movement was a classic of risk aversion mode market, fearful of an economic crisis. Traders searched for safe-haven assets such as treasury bonds, and, in this case, the Japanese Yen that seems to have resumed its refuge currency status.