The economic situation in Switzerland is not improving

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.

The economic situation in Switzerland is absolutely not improving. The SNB continues to buy massively foreign currencies to stabilize the EURCHF rate and, at the same time, the tensed economic situation in the world attracts massive investments denominated in the Helvetic currency. The problem is that the local situation (disappointing low growth figures and negative inflation) is not helping the SNB to see a bright future. Even if it slightly helps stabilizing the EURCHF rate, a prolonged negative CPI is going to hurt the country badly, which is a different aspect of the problem but as important as the first one. We can already start to feel its effects in Switzerland, and this seems to be only the beginning.  One thing is absolutely certain, the SNB will not be able to get back to a rate of 0% soon.

Even if we are now slightly below the 1.10-level, we continue to think that until the end of the month, the SNB will do whatever is necessary to keep the EURCHF rate in the 1.10-1.11 range. Therefore there might be a small upside opportunity here.

LAURENT BAKHTIARI
IG Bank Premium Client Manager (Apr 2014 – July 2016)