CHF: Unresponsive to Positive Inflation Surprise - Nomura
Research Team at Nomura, suggests that a few positive Swiss economic
data releases such as April CPI inflation are unlikely to change the CHF
“April Swiss CPI released on Monday recovered to -0.4% y-o-y from -0.7% the previous month, much stronger than the SNB’s forecast (-0.7% on average in Q2). April’s manufacturing PMI released last week also recovered strongly to 54.7 from 53.2 the previous month, its highest since April 2014. The components of the PMI are also encouraging for the Swiss economy, as the sub-indices showed strong orders and subdued inventory, while the purchase cost sub-index also recovered to its highest level since the removal of the CHF floor. The recent recovery points to the possibility of stronger growth, although the SNB expected growth to be +1.0-1.5% this year, slowing from the +1.5% pace.
CHF unlikely to react positively for three reasons
• First, the job market and consumption-related indicators remain weak, suggesting limited upside pressures on inflation from the domestic economy.
• Second, the SNB continues to judge the CHF remains significantly overvalued.
• Third, CHF has been less reactive to Swiss economic data as we reported last year, and there has been no meaningful pick-up in FX’s sensitivity to domestic data yet.
We believe foreign developments remain more important drivers for CHF for the time being, and the SNB and CHF are unlikely to react to recent few positive signs in the economy. Although inflation surprised the market positively, we expect the gradual EUR/CHF appreciation to continue, targeting 1.13 by end-2016 and 1.15 by end-2017.”