Last week saw the Swiss Franc continue to weaken against the US dollar as the greenback extended the momentous rally that started in mid-July. This week is expected to see ecnomic data catch up with the price action as Retail Sales print lower, the Trade Balance shows a narrower surplus, and the ZEW survey of analysts’ sentiment sets a new 2-year low.
[B]
Fundamental Outlook for Swiss Franc: Bearish[/B]
- SECO Consumer Climate fell to a 4-year low in July, helping the central bank’s slowdown expectations
Last week saw the Swiss Franc continue to weaken against the US dollar as the greenback extended the momentous rally that started in mid-July. This week begins with June’s Retail Sales figure, expected to see receipts growing at an annualized 3.3%. May saw a sharp uptick to 7.4% as the Euro2008 soccer championship co-hosted by Switzerland and Austria brought strong growth in electronics (23%), beverages (12.5%), and leisure goods (15.6%). A moderation in June would help the Swiss National Bank realize their expectations of a slowdown towards the second half of 2008 to bring inflation back within the target range. Switzerland has been relatively resilient in the face of the global economic slowdown. With unemployment at the lowest level since 2002, retail activity could remain well-supported.
On balance, acute deterioration in top EU countries will not go unnoticed – the regional bloc is the destination for 60% of all Swiss exports. Indeed, the Trade Balance is expected to see the surplus shrink from 2.41 billion francs in June to 2.0 billion in July on slowing outbound volumes. Producer Price Index figures are seen printing at 4.6% in July, a new 18-year high. The metric tends to lead Consumer Prices as firms pass on higher input costs via a higher purchase price for the final product. Quarterly price level readings are already well on pace to surpass the SNB’s forecast of a top at 2.75% in the three months to June, putting pressure on the central bank to act on rates at September policy meeting. Another strong decline in the August edition of the ZEW survey of analyst sentiment would help policymakers justify the on-hold posture: July yielded -76.9, the lowest reading in at least 2 years.