Expect a big market reaction
It was the ISM manufacturing survey that put markets on tilt. It could be the ISM non-manufacturing survey that ends the drama.
The services side of the economy is much larger than the manufacturing side. There is no doubt that manufacturing is slowing everywhere but the US consumer has been strong. However, like Williams said, the US economy looks great in the rearview mirror but it might not be so great looking ahead.
What's great about the ISM surveys is that they're forward-looking. The August report was surprisingly strong at 56.4 compared to 54.0 expected. It was especially surprising because markets struggled in August after Trump announced new tariffs.
The consensus on Thursday's report is for a slide back to 55.1. Estimates range from 54.0 to 57.5.
The components are especially important. In particular, the 'new orders' component is a good look at where the economy will be in a few months. It rose to 60.3 from 54.1 in August and was at the best level since February.
As for the market, expect that traders are braced for worse-than-expected news as fear grips markets following the weak manufacturing data. So long as we get a reading of 54 or higher with decent details in the sub-indexes, I see a better chance of a rebound in risk trades and USD/JPY.
