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Talking Points:

  • ISM Manufacturing Index softens to lowest level since November 2016
  • Business activity continues to expand, but at much lower levels
  • Downbeat reading worsens US selloff

The ISM Manufacturing Index falls short of expectations for December with a reading of 54.1 compared to survey estimates of 57.5. While the report lists the overall economy growing for its 116th consecutive month, the rate at which activity is expanding has slowed to much lower levels. Since the manufacturing sector composes over 10 percent of GDP in the United States, the ISM Manufacturing Index provides a timely health check on the US economy each month making it a closely watched indicator. The big miss for December echoes the steep selloff witnessed across global equities over the last several weeks as countries around the world take part in the widespread slowdown. With sentiment souring and risk-taking appetite vanishing from markets, the ISM Index reading does little to bolster confidence.

ISM Manufacturing Index vs S&P500 Price Chart (Monthly Bars, January 2015 - December 2018)

US Selloff Accelerates on ISM Manufacturing Index Miss

Of the 10 categories that are tracked in the PMI spanning new orders, employment, inventories and prices, all slowed aside for new export orders. Moreover, only 11 of the 18 manufacturing industries reported growth in December led by textile mills, with the remaining industries showing a contraction. The report compares to the prior period’s healthy reading of 59.3 which beat survey expectations of 57.5.

Take a look at IG’s real-time Client Sentiment tracker to see the bullish and bearish biases of traders.

Prior to the release, US stocks were trading deep in negative territory in response to Apple warning investors about slowing iPhone sales and a currency market flash crash. The US Dollar and American stocks extended price action to the downside immediately following the release of the ISM Manufacturing Index.

US Dollar Index DXY Price Chart (1 Minute Bars, January 3)

US Dollar Basket Index DXY Price Chart after ISM Manufacturing Index January 3, 2019

S&P500 Index SPX Price Chart (1 Minute Bars, January 3)

S&P500 Index SPX Price Chart after ISM Manufacturing Index January 3, 2019

--Written by Rich Dvorak, Junior Analyst for DailyFX

--Follow on Twitter @RichDvorakFX