Switzerland's KOF Leading Indicator reversed the prior month’s weak read surging to 105.5 (from 102.0 in May). The jump nearly covered last month’s decline and highlighted that the upwards trend indicates near term outlook remains solid. This recovery should help alleviate some concern that the Swiss economy was decelerating quicker due to the stronger CHF. The strongest drive was manufacturing, which offset some of the negative pull of construction. As discussed in the piece on China, stronger external demand helped improve the Swiss outlook around incoming orders.
We suspect that the improvement in sentiment around business climate and competitiveness can be traced to the slightly weaker CHF against the Euro. Improvement in growth and low political uncertainty has sent capital back into Europe allowing the SNB to decelerate FX intervention preventing CHF appreciation.
We remain bearish on the CHF as the SNB monetary policy is not likely to shift any time soon while ECB, Fed and members of the BoE have increasingly signaled moves toward “normalisation” and tighter policy. We view the GBPCHF as the best way to manifest this policy divergent view.
By Peter Rosenstreich
