Watch out for ISM Manufacturing today, buy on dips

• China’s manufacturing sector is now contracting... at least according to one of the two PMIs released over the weekend. The official PMI released by the National Bureau of Statistics showed a decline to 51.4 from 52.1 while the HSBC PMI fell to 49.4 from 50.4. The latter places a larger weight on small- and medium-sized companies.

• US GDP was quite weak. Not because of the 2.4% QoQ growth rate on 2Q or the much higher 1Q growth of 3.7% (vs. 2.7% in the “final” 1Q report a month ago). But rather because of the weak consumer spending in the first half of the year, which is more in line with other indicators including consumer credit and confidence regarding conditions for consumers. With the expansion in manufacturing slowing down (at best) and a stone dead housing market, consumers are expected to keep this recovery going.

• ISM Manufacturing is the one to watch today and both consensus and we expect the report to show that manufacturing grew at a slower pace. The two very good PMIs out last Friday (Chicago: 62.3, Milwaukee: 66) evens the score between the regional PMIs, which is why we expect a better number than consensus is looking for.