ISM Posts and Market Knee Jerks as if the Taper is On...

This is the just released 10 a.m. U.S. Non-manufacturing ISM ...

Released On 8/5/2013 10:00:00 AM For Jul, 2013

Prior Consensus Consensus Range Actual Composite Index - Level 52.2  53.0  52.0  to 54.5  56.0

As you can see the print of 56 is better than the consensus of 53 and above the high end range of consensus at 54.5, so a substantially better reading than expected, in fact the best 1 month increase since 2009. 

July's print makes June's look like noise in the series. New Orders and Business activity that were ugly in June, both surged in July.  New orders, the key component in the report, rose nearly 7 points to 57.7 for its best reading since December. Business activity really took off, up more than 7-1/2 points to 60.4, also the best reading since December.

However there was some mixed data, Backlog orders dropped more than 5 points to a negative of 46.75 (anything over 50 indicates growth, below 50 is contraction).

Employment growth slowed, confirming Friday's NFP, from  54.7 to 53.2.

The margin squeeze is still likely on as  Prices Paid jumped more than 7-1/2 points to 60.1, however from the F_E_D's perspective this is likely welcome considering the concerns voiced about inflation being too ow in the F_O_M_C statement.

Since the F_E_D or F_O_M_C had "apparently" tied QE3 to employment, any good news in employment is bad news for QE, the last F_O_M_C seemed to put employment in the camp of rate increases (or the lack of them until it improved) and took employment out of the QE scenario so it looks like the F_E_D can back out of QE without having employment gains, but still claim to have "Accommodative policy" until employment picks up via low rates.

The overall report "looks" strong and that would indicate that despite the drop in the employment index, the implication is, "Things will be better in the second half of 2013.

In any case, other than stocks which seemed to have little reaction at all at first, a lot of other assets acted as if QE was in danger or what is known as "Taper On".

For instance....

 Compared to the INITAL 10 a.m. reaction in the SPY above, the other QE sensitive sectors were clearly reflecting a "Taper On" or QE ending sooner than thought attitude.

 The 5 year and yields across the curve jumped at 10 a.m.

Gold dropped at 10 a.m. much more sharply than the SPX moves and...

The $US Dollar Index spiked at 10 a.m., but even as these were captured a bit ago, you could see the moves already looked like they were moderating.

The bottom line is the initial reaction was that the F_E_D is going to take away the punchbowl sooner than later.

As of now, gold has started to moderate and recover, the $USDX has also come down from the initial spike, yields are still  elevated, however as mentioned last night, the longer end at 20+ year are coming down faster than the short end at 5 year, this is what I said about Treasuries last night, the longer T's look better than the 10 year.