This morning the Swiss Consumer Price Index came out in line with the analysts’ expectations (0.1% vs 0.2% expected MoM and -0.4% vs -0.4% expected YoY). The figure is, in absolute value, very low and comparatively, it is located in the average of what we experienced since 2010. This does confirm what we explained with the Foreign Currency Reserves, which was the highest number ever for the SNB.
Pair’s Outlook
USD/JPY decided not to pull back after breaking out of the channel and prolonged the decline down to the weekly S2 level. If there is a rally today, as suggested by the daily technical indicators, it is likely to stay limited by the monthly PP and weekly S1 at 109.50/20. The current target is a critical support area between 107 and 106.65 yen, which is formed by the monthly S1, but even more importantly-by the 38.2% retracement of the four-year up-move started back in 2012. Accordingly, the risks are to the upside.
Swiss KOF leading indicator, designed to predict the Swiss economy over the next 6 months hit a new high reading at 102.9 since 1 year. The KOF continues to trend higher, which is a sign Swiss companies have started to adapt to the stronger franc.
OUR MACROECONOMIC ANALYSIS
The three largest developed economy Central Banks met again in April. The Bank of Japan took the markets by surprise in ultimately declining to take new easing measures. This could very well be a sign that Central Banks believe they are now out of ammunition. Governments must now seriously pick up the pace of structural reforms to make long-term growth last. It happens that growth generally fell short of expectations in the first quarter, except in Europe and China. The current slowdown includes a strong structural component (i.e., demographic changes and a marked slowdown in productivity gains). The consensus nonetheless forecasts a macroeconomic upturn in the second half, which will be welcome in the current environment. This rebound has already been abundantly priced in to commodities.
Japan’s exports dropped in April at the quickest pace in three months as a stronger Yen and weakness in China and other emerging markets take their toll on the country’s shipments, denting growth prospects for the current quarter. Overseas shipments plunged 10.1% in April from a year earlier, the Ministry of Finance said, while economists had predicted a 10.0% annual decline and following a 6.8% decrease in March. It was the seventh straight month of declines and the biggest since 12.9% in January, when Japanese shipments to Asia slowed sharply ahead of the Lunar New Year holidays. The drop was likely exaggerated by a fall in US-bound car exports due to supply-chain disruptions caused by last month’s earthquakes in southern Japan, but a surging Yen and tepid global demand are clouding the outlook for the year.
There are at least two possible approaches to the portfolio selection process that are philosophical opposites but sometimes can complement each other.
The S&P Index is hovering around 2,060 with EPS presently at $86.53 and P/E at 23.85 or 22.1 depending on the source one likes. The prices for equities can be considered rather high if compared with median values of P/E around 14. US Q1 reported earnings certainly do not justify such high current prices. Share repurchase programmes should have increased EPS as many companies have acquired debt to shore up their stock prices, thereby enriching executives.
China’s industrial production, retail sales and investment undershot expectations in April, despite Beijing’s aggressive easy-money policies in the first quarter, indicating ongoing weakness in the world’s second-biggest economy. Industrial output increased 6.0% year-over-year in April, down from 6.8% growth in March, the National Bureau of Statistics reported, coming in below economists’ forecast for a 6.6% gain. In addition to that, retail sales rose by a less-than-predicted 10.1% in April compared with a year earlier, slowing from March’s 10.5% year-over-year surge. Fixed-asset investment in urban areas grew by a weaker-than-expected 10.5% year-over-year in the January-to-April period, compared with an annual increase of 10.7% for the first three months of 2016.
