Citi On "Unusual Risk" From A Weaker Than Expected ADP And/Or ISM
ADP today (8:15AM) , followed by services ISM (10AM) carry unusual risk for markets today. In particular a downside surprise may be more broadly risk-off than has been the case recently on negative economic surprises.
Positioning remains long risky assets and risk correlated currencies but there are growing concerns about pressures on oil and other commodities. ADP has been resuscitated as a payrolls indicators so there will be some reaction to a big surprise. Market expectations are very concentrated at 200k -- with modest downside extension to 180k and upside to 220k. Our economic surprise index for G10 is diving sharply and our economists are on the soft side as far as payrolls go.
Net, net we think the downside risk outweighs the upside and that a downside surprise today is more risk off than normal.
ISM carries similar risks. Median is at 57.5 with heavy concentration in 56- 58.5 range. Typically a 2-point surprise is needed to move the market and our economist' forecast art 56 is very much at low end of central tendency.
Most at risk are long positions in AUD, NOK, and SEK but other risk correlated positions are similarly vulnerable. You do not have to like the USD in the long-term to see a risk of a correction.
From Citi's Stephan Englander
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