The market started lower as expected and began to slowly come back when the ISM Manufacturing release came in well-below consensus and in contraction territory. 

Comments that stood out underscore supply chains are moving but means near term interruptions and strong business competing with drumbeats of fear.  Overall, business remains steady but planning for disruptions.

"Seeing some relief in the availability of electronic components in the marketplace, but there are still pockets of short supply, allocation, long lead times and the like. Tariffs continue to be a strain on the supply chain and the economy overall." (Computer & Electronic Products)

"While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession." (Chemical Products)

"Generally, business remains steady. However, we continue to plan for a hard Brexit and a long trade war between the U.S. and China." (Miscellaneous Manufacturing)

ISM trends suggested manufacturing would move into contraction (consensus seemed high to me) but the actual numbers are worrisome.

• PMI 49.1 -2.1 percentage points
• New Orders 47.2 -3.6 pp
• Production 49.5 -1.3 pp
• Employment 47.4 -4.3 pp
• Prices 46.0 +0.9

Deflation

Although prices bounced month-over-month, the trend looks like a deflationary death spiral.  I’m not sure why the Fed, which pointed out the dangers of deflation for months, has recently underplayed the threat.

Brexit Showdown

The market selloff stalled and reversed momentarily when Boris Johnson lost his government majority, a move not totally unexpected but perhaps setting up a general election.  There is great hope from the establishment for more delays and eventually no Brexit at all.  For sure the status quo is deathly afraid of a no-deal Brexit.

Underscoring increased hopes Johnson will be derailed, the British Pound made a strong reversal higher against the U.S. Dollar.

Rest of the Day

I have to say I’m still impressed with the amount of resolve I’m seeing, which might seem odd to say when the Dow is off 400 points.  But it could be worse, and buyers continue to nibble at worst parts of selling. 

I think smart money speculators are looking for more pressure on China and the United States, but also the Federal Reserve, which has a great incentive to act before the FOMC gathering,  unless they wait more reasons to go 50 basis points.

I’m not forcing the issue. Lots of individual stocks are so oversold and many are higher already today.