GBP Drops after Disappointing PMI; CHF Surges, ADP, ISM Next

GBP is the worst performer after falling manufacturing PMI & record low mortgage lending. CHF surges higher across the board after Swiss April retail sales come at 7.5% y/y from previous -0.2%. This is the highest print since April 2008 and the impact is likely to last as traders expected only a slight improvement to 1.9%. Market shift interest to US ADP & manuf ISM.

London sessions relative strength loser is GBP after May manufacturing PMI printed 52.1, down from previous 54.4 and below expectations of 54.2. Today marks four consecutive monthly declines and the worst reading since December 2009. April mortgage approvals also disappointed when they came out at 45K vs. exp. 48K and this reading is the worst since December 2010. It seems that market got a little ahead of itself when it started to price in early rate hikes.

New York session will kick off at 8:15 am EDT with May ADP which is expected to decrease slightly from 179K to 177K followed at 10:00 am by ISM Manufacturing survey that is also expected to worsen from 60.4 to 58.4. Both indicators have shown three months of straight declines.

Should ADP shock the market either positively or negatively it is reasonable to assume lasting impact for the rest of the week as traders will expect Fridays NFP to show similar weakness. While the correlation between ADP and NFP is not perfect (over the past 20 observations the correlation is 0.6), the direction of ADP usually correctly predicts the direction of NFP.

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& Patrick Urban