Weak US data continues to flow

The week started off on a bad foot in the US, at least from an economic standpoint. February retails came in well below estimate and heightened concerns about a severe economic slowdown. The last batch of economic data was no pretty; however, the upside revisions in January’s stats soften the impact. Advanced retail sales contracted 0.4%m/m in February, while economists were expecting an increase of 0.2%. Previous month’s reading was revised to +0.7% from +0.2%. The core measure that excluded auto sales contracted 0.4%m/m versus an expected increase of 0.33%; January’s print was lifted to +1.4%m/m from 0.9% initially estimated.

Overall, the upward revisions roughly offset the disastrous readings of February. Consequently, the FX didn’t reacted much to the publication as investors’ attention was focused on Brexit talks in the House of Commons. On a more positive note, ISM manufacturing climbed to 55.3 in March compared to 54.2 in February and 54.5 estimated.

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Despite upward revisions in all of retail sales measures, consumers’ confidence has been severely damage over the last few months, thanks to a market sell-off, trade tensions between China and the US and a government shutdown. The good news is that the effects of those events won’t last. However, one worrying aspect remains, the economic boost provided by Trump tax cut and increased spending is ending. Will more liquidity from the Federal Reserve be the solution?

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.


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