(02 APRIL 2019)DAILY MARKET BRIEF 2:Swissie rebound vivid despite weaker growth
Concerns about global economic health, Brexit stalemate and Sino-American trade tensions continue to generate great demand for the franc despite economic releases pointing towards an economic slowdown. Under current settings, it seems more convincing that the Swiss National Bank (SNB) will be making use of its monetary policy tools (i.e. rate cuts, FX interventions) if necessary. The Swissie gained 4.75% against the single currency since last year and market participants appear to favor further appreciation as suggested by risk reversals. Yet the Swiss economy is not spared by current conditions.
The recent drop in March Manufacturing PMI of 50.30 (-5.1 points), its lowest level since December 2015 and the strongest drop since the 2008 financial crisis worries. Switzerland’s strong dependence to the single market and a broad uncertainty effect are however the main drivers of current results. Still, the case is not an absolute rule as shown by the Raiffeisen SME index pointing to its highest range since November 2018. Furthermore, the downtrend in the KOF economic barometer paused thanks to positive impulses from goods producing sectors suggesting that the Swiss economy should remain robust this year (GDP growth est. 1.50%), despite an expected slowdown in 2Q 2019. Recent CPI figures came stronger as expected (+0.50% m/m and +0.70% y/y) but remain largely below the 2% target. Recent inflation forecasts are pointing towards 0.60% for the year.
EUR/CHF is currently trading at 1.11945, approaching 1.11740 short-term.
