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
weakening trend.
Key Quotes
“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.
Conclusion
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.”
