Holy Hell...

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 50.6 percent, a decrease of 0.3 percentage point from July, indicating expansion in the manufacturing sector for the 25th consecutive month, at a slightly slower rate. The Production Index registered 48.6 percent, indicating contraction for the first time since May of 2009, when it registered 45 percent. The New Orders and Backlog of Orders Indexes edged up slightly from July, but both indexes are indicating contraction in August at slower rates than in July. The rate of increase in prices slowed for the fourth consecutive month, dropping another 3.5 percentage points in August to 55.5 percent. The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term."

The market was clearly expecting an under-50 number as the response was an instant 1% ramp-job with stack liquidity basically disappearing.  Given the fade that had been apparent from the open prior to the release it looks like plenty of people got caught on the wrong side of this one.

I don't see anything in here to like.  In particular imports are up and exports down which is not good, new orders are contracting, production is contracting (from expanding) and employment, while expanding, is slowing in pace.

Clearly the market was looking for a disaster, however, and didn't get it.  The reaction in the bond market and stock markets was instantaneous - and punishing if you were on the wrong side of it.

Tomorrow's NFP ought to be interesting, and the price reaction in the market offers a lesson for those who pay attention to it - "off-expectations" numbers tomorrow are likely to lead to a truly extreme move.

Be careful out there.