SNB CHF Blog: An economic encyclopedia on the Swiss safe-haven and its central bank written by an association of independent financial advisers.
In response an FXLive.com article on gains on EUR/CHF long: The EUR/CHF long was a nice trade during winter/spring 2013, when European austerity compared to American consumer spending fueled risk appetite in favor of the US. This gave the impression that only the US will grow in this world and that eventually the Fed will …View full post
Update for November: Swiss deflation is definitely finished! Even falling oil and energy prices could not move the inflation rate under zero. The Swiss CPI increased to 0.1% y/y, the European standard HICP measurement was 0.2%. Prices for food and beverages increased by 1.7% y/y – compare this with food price inflation of only 0.2% …View full post
The Swiss GDP was again one of the strongest major economies. The quarterly growth rate in the third quarter was 0.5%, the yearly one 1.9%. U.S. GDP improved by 3.6% QoQ annualized. For comparison purposes, our figures are not annualized; hence the equivalent is 0.9% QoQ. In Japan and Switzerland private consumption rose by 0.1% …View full post
Fundamentals with highest importance: The HSBC Flash Purchasing Manager Index (PMI) for China weakened from 50.8 to 50.4. In particular, new export orders, output prices and employment started to decrease again, while output increased. The preliminary Markit manufacturing PMI for the United States edged up to 54.3 (vs. 52.3 expected), a 9-month high after the …View full post
Mainstream economists speak of two Japanese lost decades(s) between 1990 and 2009. Often the United States and the UK are seen as leader in growth. Some statistics might confirm this: When we look on a more subtle criteria, namely GDP growth per capita, available at the world bank, we see a different picture. China and …View full post
Fundamentals with highest importance: In Janet Yellen’s hearing at the Senate Banking Commission, the future Fed chair emphasized the need to provide support to the economic recovery and to overcome low inflation. Her speech supported equities, gold and US Treasuries. GDP in the Euro zone rose by 0.1% QoQ in line with expectations, but less …View full post
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Important!Our Core Thesis: European leaders have successfully implemented austerity, disallowed notorious wage increases in the periphery and nearly introduced deflation. Inflation differences between the euro zone and Switzerland will decrease to zero, Swiss inflation might even be higher in some years. With time, the remaining slight CHF overvaluation will shrink to zero but the EUR/CHF will remain close to 1.20. Risk-off flows will not leave Switzerland, but they will be converted into risk-on flows (stocks and real estate) thanks to high immigration and higher Swiss GDP growth. In some years strong global growth and high German wage increases will boost inflation in Germany and Switzerland but Southern Europe will still struggle. At that moment the SNB will need to hike interest rates - before or in line with the ECB and the EUR/CHF will fall under 1.20. The consequence for monetary policy will be:
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In response an FXLive.com article on gains on EUR/CHF long: The EUR/CHF long was a nice trade during winter/spring 2013, when European austerity compared to American consumer spending fueled risk appetite in favor of the US. This gave the impression that only the US will grow in this world and that eventually the Fed will …
Update for November: Swiss deflation is definitely finished! Even falling oil and energy prices could not move the inflation rate under zero. The Swiss CPI increased to 0.1% y/y, the European standard HICP measurement was 0.2%. Prices for food and beverages increased by 1.7% y/y – compare this with food price inflation of only 0.2% …
The Swiss GDP was again one of the strongest major economies. The quarterly growth rate in the third quarter was 0.5%, the yearly one 1.9%. U.S. GDP improved by 3.6% QoQ annualized. For comparison purposes, our figures are not annualized; hence the equivalent is 0.9% QoQ. In Japan and Switzerland private consumption rose by 0.1% …
Fundamentals with highest importance: The HSBC Flash Purchasing Manager Index (PMI) for China weakened from 50.8 to 50.4. In particular, new export orders, output prices and employment started to decrease again, while output increased. The preliminary Markit manufacturing PMI for the United States edged up to 54.3 (vs. 52.3 expected), a 9-month high after the …
Mainstream economists speak of two Japanese lost decades(s) between 1990 and 2009. Often the United States and the UK are seen as leader in growth. Some statistics might confirm this: When we look on a more subtle criteria, namely GDP growth per capita, available at the world bank, we see a different picture. China and …
Fundamentals with highest importance: In Janet Yellen’s hearing at the Senate Banking Commission, the future Fed chair emphasized the need to provide support to the economic recovery and to overcome low inflation. Her speech supported equities, gold and US Treasuries. GDP in the Euro zone rose by 0.1% QoQ in line with expectations, but less …
Fundamentals with highest importance: The U.S. GDP release for Q3, showed that despite the recent U.S. critique with Germany, the Americans are trying to follow the successful Germans: for the first time since Q1/2012 and Q2/2011 exports rose more than imports. GDP was up 2.8%, but not driven by consumption, it was mostly helped by …
Some extracts from ForexLive.com Says Thomas Jordan. Need to wait to assess impact of ECB rate cut Wasn’t totally surprised by the cut Interest rates will remain low in Switzerland Low rates may lead to property bubble risk which SNB will respond to if necessary SNB monitoring property market which is already in difficult situation …
Recently, investors moved out of bonds with the expectation that inflation will rise soon. But strangely, inflation rates have continued to fall. The great disinflation continues. At the same time, the good news about the booming U.S. economy does not stop: PMI Explodes Most On Record To 31-Month High; Biggest Beat Ever ISM Services Index …
Feel free to click into the other categories “politics”, “business”, #chf, #snb in order to see more articles.
This week had a focus on – due to the government shut-down – the long awaited U.S. data: Highest importance: The ISM Manufacturing Purchasing Manager Index (PMI) for October came in at 56.4, higher than the 55 expected. The value for new orders and for production remained above 60 despite the government shutdown. The value …
Our CHF and Gold News Bar on our home page explains daily CHF and gold price movements based on the most important fundamental indicators in a few sentences. Keep in mind that the only Swiss fundamental data that is able to move the CHF must come from the SNB and from Swiss inflation data – …
UPDATE October 31, The official press release focused on the results for Q1 to Q3. The loss was 6.4 billion after a 7.3 bln. CHF loss in the first two quarters. Over all three quarters especially gold and the yen weakened the central bank’s positions. For the third quarter, it means that income was positive …
Our CHF and Gold News Bar on our home page explains daily CHF and gold price movements based on the most important fundamental indicators in a few sentences. Keep in mind that the only Swiss fundamental data that is able to move the CHF must come from the SNB and from Swiss inflation data – from 1% y/y CPI the SNB should remove the CHF cap. The other data is global macro: mostly US and German data, some European and Chinese/Japanese news publications determine CHF behaviour. CHF is positively correlated to good data from Germany and to some extent China and Japan. Good data from the United States lets CHF fall against both USD and EUR; it is hence negatively correlated to good US news. As for EUR/CHF, the Swissie is negatively correlated to good Southern European and French data. Understand the terms “American bloc” and “Asian bloc” (read here). As for gold prices please understand the basis here. Remember also that the currency movement over months is a combination of the daily movements explained here. Click here to see the news bar in a full view.
The American NAHB housing market index continued its expansion at 54, but did not reach the highs of 59 achieved this summer.
Car registrations in the euro zone improved by 4.5% in October, mostly driven by a cash-for-clunkers-scheme in Spain (+34.4% YoY), +2.3% YoY in German and +2.6% YoY in France, while Italy lagged (-5.6% YoY). This was visible in the Spanish trade deficit that expanded back to levels seen end 2012, but made German car producers happy.
Italian contractual wages were up 1.4% YoY. As opposed to Spain, Greece or Ireland, Italian wages and labor costs seem to be downwards sticky, the consequence: higher unemployment.
Medium importance: Chinese house prices were up 9.6% against last year or 0.6% MoM. In November the Philly Fed manufacturing index inched down to 6.5 (vs. 15.0 expected), the lowest level since May. Initial jobless claims declined more than expected to 323K. Norwegian mainland GDP, which excludes volatile petroleum and ocean activities, was up 0.5% in Q3 after a weak 0.3% in the second quarter. The Australian RBA kept the policy rate unchanged at 2.5%, but is seen as slightly dovish and uncomfortable with the strong Aussie. The Bank of England’s monetary policy commitee (MPC) said that the decline in unemployment was a little faster than anticipated. The Japanese trade balance in October continued to deteriorate, the adjusted trade deficit was 1,09 bln yen, about 2% of (monthly) GDP. Compared with one year ago, imports increased by 26% and exports by 18%. In particular, imports of petroleum increased by 67%. Consequently, imports from the Middle East rose by 51% and Russia by 113%, while the Japanese managed to improve the trade surplus with the U.S. by 40% and nearly eliminated last year’s deficit with Western Europe. Given that all Japanese nuclear reactors are currently of out of production, consumer spending was recently hit by higher energy costs. Abenomics my depend on the reestablishment of nuclear power, but is politically difficult.
More on Emerging Markets: The Singaporean GDP rose by 5.8% YoY or 1.3% QoQ (vs. a 1% contraction in the first estimate). Russian industrial production fell by 0.1% YoY, mostly driven by weaker manufacturing (-1.9% YoY). Mexican retail sales were 4% down against last year, but thanks to rising exports, the GDP improved by 0.8% QoQ (+1.3% YoY) after a -0.6% in Q2.
The Brazilian current account deficit increased to 7.13 bln. USD, which is 3.3% of (monthly) GDP.
FX Price Movements
Thanks to the good German and bad Chinese data, the leaders of the week were the European currencies GBP, EUR, CHF and SEK, while the ones of the Asian bloc AUD, NZD, JPY and gold and silver lagged.Since 2009, we have seen the FX world as a bipartite division into the American bloc and the Asian bloc, driven mostly by US and Chinese data. Chinese demand for capital goods was the main driver of German exports and GDP since 2009; Germany was somehow a slave of the Chinese expansion. On the other side, European spending helped Chinese producers until austerity also weakened China. We are not sure if German spending is able to lead Europe out of recession and create something like a European bloc, driven by strong European spending, something that drove the euro up to EUR/USD 1.60 in 2007. At least this week, it looked like a concept like a European bloc could strongly influence FX rates. On the other side the strong euro, thanks to good German data despite very weak French and Italian PMIs, showed that the main driver behind the euro is Germany and the other countries are important only during times of fear.
Swiss data and news
The Swiss trade surplus (source in German/Italian/French) for goods increased slightly to 2.43 bln. francs, about 4.5% of (monthly) GDP. The FX rate-sensitive machinery and electronics industry continued its recovery and increased exports by 6.7% compared to October 2012 (but -0.6% for the first 10 months of this year). The food industry was still the leader for the first 10 months while the previously very strong (and relatively FX-rate insensitive) chemical and pharmaceutical industry and the watch industry lagged with a nominal 3.3% and a 1.8% rise. Falling energy prices (-11% in real or 23% in nominal terms) helped to keep the trade surplus strong.
Gold, Silver and CHF
Due to the continued weakness in emerging markets, e.g. the bad Chinese PMI and the expanding Brazilian current account, gold and silver had a very bad week. This combined with new tapering fears drove gold down to 1242$.
Thanks to better German and weaker French and Italian data, the Germany-related Swiss franc improved by 10 bips against the euro, EUR/CHF 1.2296. The USD/CHF fell to 0.9070 by 0.64%.
The Chinese industrial producer price index (PPI) continued to show deflationary tendencies (-1.5% y/y), while the consumer price index (CPI) was up to 3.2% y/y, the highest level since May 2012.
Industrial production in the euro zone inched down by 0.5% in September against August. Compared with September 2012, however, it was up 1.1%. Industrial production in the United States was down -0.1% MoM in October (or +3.2% YoY) while both August and September were strong with 0.5% and 0.7%. The Bank of England sees its target of 7% unemployment reached by Q3/2015 and the 2% inflation target already in 2014. This is earlier than the bank expected previously. The unemployment rate inched down to 7.6% in September from 7.7% in August.
Medium importance The Japanese not seasonally adjusted current account for September improved to 587 bln. Yen, but the adjusted current account, however, fell to -130 bln. Yen.
Japanese industrial production edged up 1.5% MoM or 5.1% YoY against October 2012, when Japan had a row with China. Standard & Poors’ downgraded France from AA+ to AA. In particular, they criticized that public debt is to be reduced mostly via tax hikes in a country where the tax burden is already very high.
More on Emerging Markets:
Despite somewhat higher PMIs, the slowing in emerging markets (except China) continued: Mexican industrial production inched down 1.6% y/y after only -0.4% in the previous month. Indian production improved only by 2% y/y. The central banks of Russia, Indonesia and Brazil are still fighting inflation and remained in tightening mode with lending rates of 5.5%, 7.5% and 9.5% respectively. Due to still high inflation, Russian GDP increased by only 1.2% in Q3/2013 y/y, economists see Brazil grow by 2.1% in 2014.
FX Price Movements
Helped by some weaker Japanese data, the clear looser of the week was the Japanese yen. Thanks to Yellen’s support, stocks and US Treasuries rallied and, logically, the funding currency JPY depreciated. The winners were the risk-on currencies MXN, ZAR, NZD, CAD and EUR, while the US dollar and the yen lagged. The Asian bloc, NZD, AUD, KRW, SGD and NOK appreciated vs. the dollar.
Swiss data and news
Recent good US data are visible on the SNB balance sheet. For the second week in a row SNB sight deposits have fallen by around 500 million (compared to a total of 368 bln. not a lot). We judge that foreign banks are retreating some funds from Switzerland (details).
The UBS bought back the Stabfund from the SNB, a win of 5.3 bln. CHF for the central bank – details. On the other side, it will still be years before the UBS will start to pay taxes, thanks to unused tax losses carried forward – details (in German). The Swiss regulator FINMA and the SNB have declared the Zurich Cantonal Bank (ZKB) as “system-relevant”, which implies that the bank needs to increase capital. – details. Thanks to cheaper energy the Swiss producer price index moved into deflation again: -0.3% YoY after 0.0% last month.
Gold, Silver and CHF
Thanks to Yellen’s support, gold remained stable this week around 1292$, even if last week’s strong NFP figures initially weakened the yellow metal. Silver depreciated by 3% given the good NFP figures and continuing low growth in emerging markets (except China). Yellen’s support and the not so bad European GDP figures helped EUR/CHF to gain some 30 pips from 1.2317 to 1.2347. Unconvincing U.S. data and Yellen’s downwards pressure weakened the the USD/CHF rate from 0.9216 to 09148.
The ISM Non-Manufacturing PMI appreciated from 54.4 to 55.4 despite the government shutdown. This PMI is most important and strongly related to GDP.
The European Central Bank reduced its key lending rate from 0.5% to 0.25%. Even if the decision generated many headlines, the euro did not depreciate a lot because the deposit rate remained at 0%. EONIA rates depreciated by around 10 basis points.
According to the Non-Farm Payrolls report, American firms created 212K new jobs, far more than the 125K expected. Furloughed workers affected by the government shutdown were not considered as unemployed in this survey. In the second survey, the household survey, however, many furloughed workers were considered as temporarily unemployed or even as “out of the labor force”. Therefore, unemployment increased to 7.3% and the participation rate to 62.8%.
The official Chinese services PMI increased from 55.4 to 56.3 in September and the HSBC services PMI from 52.4 to 52.6. This confirmed the continuing Chinese recovery. The eurozone manufacturing PMI remained stable at 51.3. German manufacturing was stronger, but Italian and French weakened. The eurozone services PMI fell to 51.6 after a value of 52.2 in September, which was driven by higher German and French values.
U.S. factory orders (excl. the volatile transportation component) for August and September depreciated 0.4% and 0.2% and contradicted the recent strong ISM manufacturing PMI.
The European producer price index (PPI) fell by 0.9% YoY compared to the 1.2% increase for the U.S. and minus 1.5% for China. The weak German PPI of -0.4% and cheaper German prices were reflected in a record-high German trade surplus for goods of 18.8 billion €, 6 % of monthly GDP. German factory orders rose strongly by 3.3% MoM in September but industrial production inched down by 0.9% MoM. European retail sales in September were down on the month, but nearly unchanged YoY.
The UK continued to witness good data: rising industrial production (+2.2% yoy), higher house prices (+6.9% YoY), higher retail sales (+0.8% YoY) and a NIESR GDP Estimate of +0.7% QoQ. The British PMIs were “over-enthusiastic”: 56.0 for manufacturing, 59.1 for construction and a 16-year high of 60.1 for the services.
In line with falling inflation in Europe, the Swiss inflation rate fell to -0.3%, the HICP is currently 0.0% versus 0.7% in the Euro zone. In both Europe and Switzerland, recent lower energy and food prices helped to reduce costs. Prices of Swiss services are rising by 0.7% YoY. The seasonally adjusted unemployment rate remained at 3.2%, while colder temperatures increased the not adjusted figure from 3.0% to 3.1%. Swiss retail sales increased by only 1.0% YoY after 2.5% in September.
Weekly FX rates
The winners of the week were the US dollar and pound sterling thanks to very good fundamental data. But US GDP was too good, with the consequence that on Thursday stocks depreciated and the founding currency JPY improved.
Better Chinese data did not help the Asian bloc. Both the risk-on currencies AUD and NZD and the safe-havens JPY and SGD depreciated against the dollar.
The European risk-on currencies NOK and SEK were hit hard on Thursday by two pieces of news:
1) The ECB spoke about prolonged European low inflation. Traders interpreted this as longer than expected low Norwegian and Swedish interest rates or even rate cuts.
2) The stronger U.S. GDP could lead to an outflow of American risk-on funds from Norway and Sweden.
Gold, Silver and CHF
Due to the good US data, gold fell under the important 1300$ barrier again, while silver was not hit that strongly. Both the U.S. and emerging markets are recovering, this helps the silver price. But due to smaller surpluses in China and other emerging markets, gold demand by central banks is weak. Consequently, the gold/silver ratio should shrink further.
While CHF weakened against the dollar by about 1%, the EUR/CHF rate was nearly unchanged. Thanks to better U.S. data, EUR/CHF improved from 1.2306 to 1.2317 during this week. After the ECB rate cut, it had dipped to 1.2284.
The EUR/CHF had an important change of behaviour: Since risk aversion ebbed, a stronger dollar led to an increase of EUR/CHF. But with the weak euro zone inflation figures on Thursday, CHF improved against EUR and followed the rise of the dollar.
The American FHFA house price index rose only by 0.3% MoM after improvements between 0.5% and 1% per month since December.
The Michigan consumer sentiment decreased from 75.2 to 73.2 with the US government shutdown.
The Japanese trade deficit continued to deteriorate, imports were up 16.5% YoY but exports only 11.5%.
The Australian CPI increased 2.2% YoY, higher than 1.8% expected. With this news, rate hikes seem to be getting more remote.
Both the Norwegian Norges Bank and the Swedish Riksbanks left their key rates unchanged at 1.5% and 1.0%. The Riksbank has currently a dovish bias, while Norges Bank wants to keep rates until mid 2014. With falling Norwegian inflation, this is positive news for NOK/SEK (see more in our recent posts).
Still bad performance in emerging markets: Mexican retail sales -2.2% YoY, -1.4% MoM. Brazilian unemployment increased from 5.3% to 5.4%.
Weekly FX movements
Thanks to bad U.S. performance, gold and silver outperformed markets. Usually in these cases, silver (XAG) has about twice the performance of gold (XAU). But the PBoC tightening gave gold, the stronger crisis hedge, a relatively stronger performance.
The euro and the Swiss franc profited most from bad U.S. data and not – as usual- the yen. The Japanese currency was hit by the tightening in neighboring China and the bad Japanese trade data.
Other currencies of the American bloc, CAD and MXN, weakened with the bad U.S. data. The risk-on currencies of the Asian bloc, AUD and NZD, depreciated with the PBoC comments. The by far weakest performer was the NZD that was hit hard by the Chinese tightening and negative comments from New Zealand’s government and RBNZ’s Wheeler about the strong currency and possible interventions.
The CHF was once again the strongest currency this week. USD/CHF inched down 1% from 0.9019 to 0.8926, while the EUR/CHF fell slightly from 1.2344 to 1.2322.
Swiss Trade Surplus Achieves Record-High
The Swiss balance for trade in goods attained a new record high in Q3/2013 with 6.87 bln. CHF. Thanks to the “artificially suppressed” franc, the exchange-rate sensitive machinery industry achieved a 3.9% increase in exports against Q3/2012, the change from 2011 to 2012 was -9.6% . The food and plastics industry surprised with increases of 7 to 10% YoY, compared to +3.4% (food) and -6.1% (plastics) in 2012.
As a consequence, gold, silver and the risk-on currencies of the Asian bloc, namely AUD, NZD and NOK appreciated, while the dollar weakened. Together with its friends in the Asian bloc, CHF also inched up: USD/CHF depreciated by 1% from 0.9122 one week ago to 0.9021. As usual EUR/CHF followed the weaker USD and fell from 1.2350 to 1.2344 during the week.
British industrial production, however, was down 1.1% m/m or minus 1.5 y/y, more than 15% weaker than in 2007.
In absence of American and Chinese fundamental news, traders could concentrate on Fed’s tapering expectations and hopes on an end of the debt ceiling debate. The dollar was the clear winner of the day. USD appreciated especially against GBP, the safe-havens CHF and JPY and the European euro, SEK and NOK. The dollar was up 0.96% to 0.9107 against the franc. As usual, since the perceived “end of the euro crisis”, the EUR/CHF followed the rising dollar and inched up 0.36% to 1.2311. Yesterday’s bad news for Emerging Markets and the stronger dollar continued to depress gold: it fell by 1.3% to 1303$.
This piece of news helped the pound to appreciate. We wonder that, similar to the wrong Fed forecasts since 2009, the IMF always projects 1% higher U.S. growth for the forthcoming year (this time 2014) than for the current year and – each time they get wrong. The reasoning for the IMF is higher U.S. credit offers and higher spending. Given that many U.S. and British households are still balance-sheet-constrained, we think that the demand for credit will not match the increased credit offer and many will prefer to pay down debt and spend less. This will limit GDP growth. We see Switzerland grow as much as the U.S. in 2014 and more than the U.S. in 2013. Two reasons: the Swiss are not balance-sheet constrained and have higher immigration.
Thanks to income from abroad, the Japanese managed to achieve a small current account surplus, but the high trade deficit weighed on the yen. In late trading the news that Obama had chosen Yellen as the new Fed chair weakened the dollar again and supported risk-on currencies like BRL, AUD and NZD. Weaker growth for emerging markets was negative for gold, the news about Yellen positive. Hence gold fell slightly to 1320$. With mostly negative news and bad equities performance, USD/CHF fell 0.1% to 0.9020. But CHF reacted to the bad news from the correlated German and emerging markets: EUR was slightly up against CHF to 1.2267. With falling energy prices compared to last year, Swiss y/y inflation for September weakened to -0.1%. The HICP remained 0.9% under the provisional reading of the euro zone.
On the other side, U.S. manufacturing has recovered: major reasons are the relatively low oil prices and the falling competition from Emerging Markets due to quickly rising wages.
A recovery of manufacturing together with weak oil prices would imply a reduction of the U.S. trade deficit and it would exercise further downwards pressure on gold. At 55.4, the Chinese Non-Manufacturing PMI was stronger than the previous reading at 53.9. European retail sales came in better than expected, but a look on the details shows the massive contraction compared to last year in Greece, Cyprus or Spain (between -6% and -14%), the continuing Germans reluctance to spend (+0.4% y/y) and the French resistance to austerity (+1.7% y/y). The Italian Services PMI managed to be close to the German Services PMI (52.7 vs. 53.7). If the PMIs for the rest of the eurozone are able to overtake the German one, then this might imply a rising EUR/CHF. The PMIs usually reflect y/y GDP growth (see below). However, given that Italy was in a big economic trough, it is far easier for them to grow than for Germany that has had stronger GDP growth for years.
With better European and Chinese news and weaker U.S. data, “anti-dollar currencies” or safe-havens like AUD, NOK, SEK, JPY and CHF appreciated. USD/CHF fell slightly under the 0.90 support (-0.33%) and EUR/CHF to 1.2246 (-0.11%). Gold was nearly unchanged at 1315$.
With weak Chinese data and good U.S. news, gold depreciated to 1328$ (-0.61%). Despite better American fundamental data, CHF could appreciate; reasons were the US government shutdown and the withdrawal of Berlusconi ministers from the Italian coalition. On the other hand, weak European inflation lowers the possibility of a carry trade EUR vs. CHF and the chances of a rising EUR/CHF. With appreciating stocks most risk-on currencies were up against the dollar. One exception was NOK where the central bank is exercising financial repression: 1.5% key rate versus 3.2% inflation. NOK depreciated once again compared to the “low inflation Euro”. USD/CHF fell 0.23% to 0.9040, EUR/CHF 0.2% to 1.2230.
Lower US unemployment figures drove some risk-on currencies lower, namely those that depend more on U.S. capital, e.g. BRL, MXN and AUD. With better U.S data, also gold (-0.9% to 1322$) and silver weakened. Potentially due to the broken 200 Day Moving Average the EUR/CHF did not appreciate despite rather good U.S. data, but fell 0.18% to 1.2278. USD/CHF went slightly up to 0.9106.
Tuesday, September 24:
The Richmond Fed Index dropped unexpectedly from 14 to 0 (vs. 12 exp.). The board consumer confidence fell slightly, while the Case Shiller Index continued its strong performance: a 12.4% y/y price increase. The IFO business expectations from Germany improved to 104.2, the best reading for 17 months, but the current situation was weaker. With the mostly bad fundamental data commodities, especially oil prices, weakened once again while stocks remained positive for most of the day, but depreciated in late U.S. trading. Commodity currencies were hit, biggest losers were NZD, NOK and MXN. Thanks to bad U.S. news, gold contradicted the downtrend in commodities and was nearly unchanged. The rather good German data was not enough to let EUR and CHF rise. The dollar appreciated against CHF by 0.20% to 0.9126, while the euro was nearly unchanged vs. CHF.
Thursday, September 19:
The Swiss National Bank repeated the usual messages: it maintains the CHF cap and is ready to buy foreign currency in unlimited quantities. As very often in recent years, it upgraded GDP growth expectations (by 0.5% to 1.5%-2%), and this time also inflation expectations (by around 0.2%). After the strong fall of USD/JPY after the FOMC, markets quickly remembered that the principal funding currency is currently the yen and not the dollar. A JPY 5 trn stimulus package that includes about JPY 1.4 trn of corporate tax cuts weakened the yen additionally. After moderate, 0.6%, stock price increases yesterday, the S&P500 added another 1.2% and the yen depreciated by 1.34%. Better than expected home sales, a very good Phily Fed (22.3 vs. 10 exp., in-line with the strong ISM) and lower than expected jobless claims helped the greenback to improve. The whole Asian bloc inched down, JPY fell the most, followed by AUD, NOK, SGD and NZD. But also the American risk-on currencies BRL, MXN and CAD fell after strong gains yesterday. The SECO upgraded Swiss growth from 1.4% to 1.8% – no surprise after the 2.5% YoY increase in Q2. Maybe because of this news, or potentially due to higher expected Swiss inflation, both USD and EUR weakened by -0.12% against CHF despite good US fundamentals. Due to better US data, gold fell slightly.
Another driver for lower gold prices was the 1960s-style proxy war between the U.S. and Russia/China called “Syrian civil war”: The Russians yesterday achieved yet another accomplishment against an American attack on Assad, when Syria vowed the chemical-weapons ban. But oil prices did not react to this, solely gold and silver depreciated. With weaker stocks the safe-havens JPY, CHF and the US dollar were the strongest, while most risk-on currencies fell, especially the Aussie after bad higher unemployment. The euro depreciated slightly against CHF, while the dollar slightly improved.
Thanks to stronger Asian data, USD/CHF depreciated 0.50% to 0.9302 and EUR/CHF 0.15% to 1.2385. Gold was nearly unchanged.
Friday, September 6:
The US Non-Farm Payrolls (NFP) figures were disappointing. The reason for the lower unemployment rate of 7.3 was entirely the weaker participation rate, while prior NFP readings were revised downwards. The US recovery remains the one of the older employees, the one of the part-time jobs and the one with the longest delay. Most interestingly, the NFP contradicted the strong ISM indices, a fact that could leave markets with interpretation difficulties. Our interpretation is that after the quite strong job creation over the winter months, companies are increasing margins now, which is visible in higher headline ISM numbers compared to the employment component.
With weaker US data, stocks, gold (+1.66% to 1392 $), silver and the currencies of the Asian bloc improved: NZD led, followed by JPY, NOK, CHF, AUD, SGD and KRW. But thanks to less tapering fears, also the risk-on currencies of the American bloc were stronger: MXN, CAD, SEK and BRL. The USD/CHF fell to 0.9374 (-0.8%) and – like always on weaker US data – the EUR/CHF depreciated to 1.2357 (-0.33%). With some seasonal effects on food prices and a continuing sell-off in clothes, Swiss inflation eased. It was slightly down on a monthly basis, but unchanged at 0% y/y.
Tuesday, September 3:
The weaker CHF after the strong Swiss GDP data sustained the fact that trading algorithms ignore Swiss fundamentals as long as no SNB rate hike expectations exist. The market-mover was the strong U.S. ISM Manufacturing index with 55.7 vs. 54.0 expected. On the other hand, the Markit Manufacturing PMI fell to 53.1, but construction spending was up 0.6% m/m. The Chinese Non-Manufacturing Index, at 53.9, was slightly weaker than the previous reading. With the help of a less dovish RBA, the AUD improved. The other currencies of the Asian bloc, however, depreciated due to weaker Chinese and stronger U.S. data: SGD, NZD, KRW and JPY fell. Thanks to stronger U.S. data, USD/CHF inched up 0.17% to 0.9364 and EUR/CHF 0.04% to 1.2334. Despite weaker Chinese and stronger U.S. data, gold (+1.25% to 1411$) and silver (+0.1%) appreciated. The fact that gold was stronger than silver shows that prices were driven by Syria fear after Obama won the backing of key senators.
With lower or no current account surpluses in China and other Emerging Markets, gold purchases by central banks are limited. Silver, however, profits from the recovery in China; therefore, we see the gold/silver ratio falling further. See also our recommendation for silver purchases in April.
Monday, September 2:
The Chinese recovery we have been speaking of since the strong import figures on August 8, intensified. The HSBC PMI moved from 47.7 to 50.1 and the official PMI inched up slightly to 51. The latter contains rather bigger and state-led firms and was less hampered by restrictive monetary policy of the PBoC. The Eurozone Manufacturing PMI came in at 51.4, slightly above the preliminary reading of August 22. The German PMI, however, was at 51.8, weaker than the preliminary one at 52. Thanks to better Chinese data the currencies of the Asian bloc improved: KRW, AUD, NZD, NOK and, as usual, gold (+0.96% to 1396$) and silver. As a general rule, JPY improves on better Chinese data as well, but not this time. Hopes of a carry trade vs. JPY let the greenback rise against the yen. Due to weaker German data, USD/CHF rose 0.24% to 0.9348 and EUR/CHF 0.11% to 1.2329. The Swiss SVME PMI confirmed the German weakness and inched lower from 57.4 to 54.6.
Friday, August 30:
Market movements were caused by good Japanese data and the therefore stronger funding currency yen. The Japanese headline CPI rose to 0.7% y/y, industrial production by 3.2% m/m and the manufacturing PMI to 52.2, while the unemployment rate fell to 3.8%. European unemployment was unchanged at 12.1%, while business and consumer sentiment is improving in both Europe and the US (the Michigan sentiment was up to 82.1%). The Chicago PMI came in as expected at 53.0. With this rather weak regional reading and 3 positive and 3 negative (e.g. NY, Phily Fed) ones, our forecast for Tuesday’s ISM Manufacturing PMI is now at 53.0 compared to a 54.0 consensus estimate. The BEA personal income and outlays report showed that American incomes are rising mostly thanks to rising incomes on rents and on assets, but far less on wage income. The big gap between spending increases and income is (finally?) getting smaller again; interestingly the data about slowing US spending comes at a time when Europeans are reducing their austerity (click to expand graph).
The weaker euro zone inflation reading (1.3% vs. 2.0% in the US) could increase margins and make the rather cheap European stock markets more interesting. This is yet another reason why we expect EUR/USD to rise. On Friday, however, Kerry’s words about a limited action in Syria let oil, gold and silver depreciate, gold was down 1.27% to 1395. But due to the stronger funding currency all commodities, stocks and the risk-on currencies BRL, NZD, SEK, NOK and MXN lost, while the Asian bloc safe-havens KRW, SGD, CHF and JPY improved. EUR/CHF inched down -0.26% to 1.2295 and USD/CHF -0.11% to 0.9300. The Swiss KOF leading index traced the European recovery and improved to 1.36 delivering the best reading since November 2012.
But this narrowing in the “oil trade deficit” should be partially reversed by higher energy prices in Q3, especially if the Nobel prize winner for peace goes to war alone. See also our “Why There Won’t Be A Strong Dollar Even If The Financial Establishment Thinks So” from July 24th that anticipated the recent dollar weakness.
Like nearly always in the case of stronger US data, the CHF weakened more than the euro itself. USD/CHF was up 0.92% to 0.9313, EUR/CHF up 0.20% to 1.2328. Like always, Swiss fundamental data – this time the rise of 1.7% in Swiss employment vs. Q2/2012 – did not move CHF at all. The greenback improved between 0.1% and 0.6% against most other major currencies. With the strong US data, Gold (-0.96% to 1404$) and silver lost again.
Due to the war fears, stocks fell and gold, silver, the yen and the European safe-havens of German Bunds and the Swiss franc improved. Driven by better German data, CHF, NOK and SEK inched up, NOK was additionally helped by higher Brent prices. Other risk-on currencies like AUD, NZD, MXN and KRW depreciated. Despite war fears, oil prices inched up only 3%. USD/CHF was down 0.56% to 0.9178 and EUR/CHF fell 0.41% to 1.2290. Gold was up 1.67% to 1416$.
Thursday, August 22:
The Chinese recovery, visible in fundamental data since August 8 (see below), intensified. For the first time since April, the HSBC Manufacturing PMI moved into positive territory with 50.1 (vs. 48.3 expected). Given the German dependency on Chinese orders, it was no surprise that the German Manufacturing PMI improved to 52.0 (vs. 51.2 expected). Both European manufacturing and services’ PMIs strengthened to 51.3 and 51.0, while the Markit Manufacturing PMI for the U.S. remained nearly unchanged at 53.90. For the first time this month a regional American index, the one of the Kansas City Fed, could improve. Additionally helped by higher U.S. initial jobless claims, stock markets and risk-on currencies like MXN, BRL, AUD and SEK strengthened but the yen, the founding currency, lost 1% against the dollar. USD/CHF was up 0.14% to 0.9236, EUR/CHF up 0.15% to 1.2337. Gold inched up 0.34% to 1375
Asian stocks fell for a fourth day after U.S. Treasury yields reached a two-year high. Currencies from Malaysia to Thailand declined amid an emerging market exodus that’s seen investors withdraw $8.4 billion from exchange-traded funds this year.
We agree with the Market Monetarist that Chinese tightening is more important for a weak Asia than the Fed’s tapering. Still we judge that most Chinese weakness has finished by now and that the PBoC offers more support. Apart from falling stocks, one major fundamental story was the worsening of the Japanese trade balance – mostly due to higher Brent oil prices and the rising deficit with the Middle East. The second piece of news was the Bundesbank comment that, “ECB forward guidance is not an unconditional commitment”. The Asian currencies JPY, AUD, NZD, KRW and SGD weakened, while the Germany-proxies CHF and SEK inched up. USD/CHF fell to 0.9245 (-0.29%), EUR/CHF to 1.2327 (-0.26%). With a weak Asia gold dropped to 1367 (-0.68%).
Wednesday, August 14:
After the strong German (+0.7% vs. QoQ vs. 0.6% expected) and French GDP (+0.5% vs. 0.2% expected) figures, EUR/CHF rose to an intraday high of 1.2427 and USD/CHF touched 0.9377. Traders, however, forgot two points:1) The euro zone is not only Germany and France. This was confirmed by only +0.3% (vs. 0.2% exp.) in the whole euro zone.
2) CHF is correlated to the performance of Germany: Swiss GDP should come in just a bit weaker than German GDP. Usually new highs in EUR/USD go in line with new lows of USD/CHF. Only speculation on ECB rate hikes or a strong dollar may move EUR/CHF up.
As we expected, quantitative algorithms written by global macro funds and U.S. investment banks moved EUR/CHF down again.
The weaker French CPI (-0.3%) confirmed our judgement that Swiss and European inflation will get closer and closer, the SNB might be the first to hike interest rates.
Thanks to the recovery in Europe, gold and especially silver (for one week strong gains every day) continued their upwards trend. The Asian and European risk-on currencies – AUD, NZD, NOK and SEK – inched up, the yen recovered some of Tuesday’s excessive losses. EUR/CHF ended the day at 1.2400 (+0.20%), USD/CHF at 0.9338 (+0.20%). Gold went up 1.59% to 1342.
Stephen Jen: “The dollar needs confirmation that this economic divergence is indeed playing out“We need to see better data in the U.S., and we need to see weak data in the rest of the world. If this thesis is undermined, then the dollar will struggle.”
SNB sight deposits remained nearly unchanged, as has been the case for weeks and months already.
Friday, August 9:
Once again China had major fundamental news. Chinese industrial production rose by 9.7% y/y (vs. 9.0% expected), fixed asset investments were up 20.1% y/y, higher than expected but retail sales missed (13.2% vs. 13.5% expected). According to Goldman’s Jim O’Neill the increasing speed of industrial production compared to retail sales means “debalancing”, i.e. more Chinese production for the rest of the world, less Chinese purchases from the rest and therefore more investments in China.
Yesterday’s rise in AUD, in the German DAX, in copper, gold and silver anticipated the increase in production, investments and more debalancing. Once again commodities were up: copper +1.20%, gold +0.27% to 1313, silver +1.60%, Brent oil +1.45% and crude oil even +2.68%. Thanks to China, the Asian bloc currencies were the winners of the day: AUD , NZD SGD, JPY and NOK (additionally lifted by higher Norwegian inflation). The drop of US wholesale inventories should have a negative influence in Q3 US GDP. This news, the decline in French industrial production (-1.4% MoM) and a weaker than expected Italian trade balance let the euro and American stocks fall. EUR/CHF was down 0.04% to 1.2307 and did not decrease more despite the stronger Asian data that is usually positive for CHF. USD/CHF was up 0.23% to 0.9224. With the stronger Chinese data it has become obvious that the stronger US ISM manufacturing index was possibly caused by a stronger global demand. Therefore, it was inappropriate to bet on a stronger dollar, as we did on August 1. A stronger global economy is still associated with a weaker dollar, at least if the Fed does not taper too much.
Wednesday, July 24:
During a day full of fundamental data the most important ones were three manufacturing PMIs. The weak HSBC PMI for China with 47.7 was still impressed by funding issues. The Markit PMI for the U.S. rose to 53.2. Euro zone PMIs continued to improve, manufacturing 50.1 and services 49.6, Germany has 50.3 and 52.5 respectively. The losers of the day were logically the Asian currencies, especially the Aussie and the Asia-related gold (down 1.8% to 1320). Because of the good German data (CHF is strongly Germany-related) EUR/CHF could rise only slightly to 1.2374 (+0.09%), but also oil prices. The Scandies SEK and NOK lost both 0.7%. With weak China, the dollar was generally stronger, USDCHF up to 0.9381 (+0.32%).
Tuesday, July 23:
The 7.3% higher US house prices sustained initially the dollar, but a Richmond Fed manufacturing index of -11 weakened it again. The strongest EU consumer confidence since August 2011 helped an increase of thre EUR/CHF to 1.2369 (+0.19%), while USD/CHF fell to 0.9348 (-0.10%). The European risk-on currencies NOK and SEK strongly improved.
Monday, July 22:
Positive comments from the BoJ’s Sato sustained the yen, while the removal of the Chinese lending floor helped gold (+2.95% to 1333$) and the Asia-bloc AUD, NZD, SGD, CHF and NOK once again. Weak US housing data intensified the trend. USD/CHF down to 0.9364 (-0.54%), EUR/CHF to 1.2349 (-0.16%).
Friday, July 19:
The strong Japanese All Industries Activity Index (+1.1% MoM) and the removal of the Chinese lending floor sustained the Asia-bloc currencies AUD, NZD, SGD, CHF and gold (+0.89%), while the US-related MXN was down. JPY was weaker with the expected win of Abe’s LDP in Sunday’s elections. USD/CHF down to 0.9415 (-0.34%), EUR/CHF to 1.2369 (-0.13%).
Thursday, July 18:
A good Phily Fed (19.8 vs. 7.8 expected) and weak Australian data let the US dollar rise against the yen (+1%), Aussie (+0.61%) and CHF (+0.34% to 0.9446). Stocks, MXN and CAD are up. Consequently EUR/CHF up +0.28% to 1.2381. The Swiss trade surplus increased again to 2.73 bln. The CHF was higher than forecast at 2.2 bln. As usually CHF did not react to the news. Implicitly it should have a consequence, see quarterly trade balance data and the background.
Wednesday, July 17:
With the Bernanke testimony both the US dollar and stocks recovered some of yesterday’s losses against the Asians, AUD, NZD and especially JPY. Due to BoE inaction the pound was stronger. With very weak U.S. building permits and housing starts, however, EUR/CHF fell to a new 2-week low of 1.2348 (-0.11%), while the dollar was up to 0.9422 (+0.22%) against CHF. After the testimony gold had heavy losses, -1.24% to 1276.
Tuesday, July 16:
The RBA monetary minutes showed that the situation in Asia/Oceania is not that bad despite the Chinese slowing. The Aussie dollar rose against the US dollar and with it the whole Asia bloc: JPY, NZD, the Brent oil-related NOK and the more Asia-related CHF. With the stronger yen, stocks fell. Once again after Friday’s PPI, the higher than expected U.S. CPI (0.5% instead 0.3% exp.) helped to hike prices of the inflation hedgers CHF and gold (up to 1290 by 0.6%), while better U.S. industrial production (+0.3%) and housing data sustained the dollar a bit. EUR/CHF down to 1.2365 (-0.17%), USD/CHF even down to 0.9404 (-0.84%).
Monday, July 15:
New week, new hope: Chinese GDP rose by 7.5% as expected. Higher than expected Chinese retail sales lifted the Nikkei and fueled hopes for a carry trade: AUD, NZD were up, and both JPY and CHF down. US retail sales ex gasoline rise 0.3%. Both dollar (to 0.9484) and euro up (to 1.2386) are 0.2% up against CHF. Swiss PPI +0.2% y/y (no influence).
Friday, July 12:
US PPI rose by 2.5% y/y, 0.8% m/m, more than expected, mostly due to the spiking crude oil in the driving season. In combination with the Fed’s promises not to taper early, this created demand for inflation-resistant CHF and gold. USD/CHF fell by 0.15% to 0.9462 ; EUR/CHF down by 0.30% to 1.2365, intensified the descending channel since the Fed meeting.
Thursday July 11:
US initial Claims Spike To 360K: Highest In Two Months. USD/CHF nearly unchanged to 0.9476. EUR/CHF down 0.21% to 1.2402.
Wednesday, July 10:
The Fed made clear that it wants more jobs before it slows QE. Additionally, US wholesale inventories were down by 0.5% m/m. This will affect the inventories component in the US GDP. Several banks downgrade US GDP. Both events drove USD/CHF from a high of 0.9746 by 2.71% to 0.9474. EUR/CHF started descending from 1.2441 to 1.2428.
© 2013 SNB & CHF.