Early data suggests Switzerland’s [B]Retail Sales[/B] may reverse lower in January after December’s rebound to 3.6% as the UBS Consumption Indicator holds at the worst readings in 4 years. We had expected December’s uptick, noting that the SECO measure of consumer confidence rebounded from record lows as inflation came to a near-standstill, boosting Swiss consumers’ purchasing power. Looking ahead, the underlying fundamental environment is hardly supportive of continued strength. Unemployment has risen to 3.4%, the highest in over 2 years, and will weigh on disposable incomes as well as prompt precautionary saving. Further, the fallout in price growth will work against consumption if inflation expectations turn negative, encouraging consumers to perpetually delay purchases to get the best possible deal and putting the brakes on spending altogether. Indeed, the government said yesterday that it expects consumer prices to fall -0.2% through 2009. The prospect of deflation has seen the Swiss National Bank adopt the most aggressive posture of any major central bank: policymakers cut interest rates to 0.25%, announced quantitative easing, and said they were prepared to intervene in forex markets to prevent appreciation of the Swiss Franc.