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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Swiss economy coughs, USD lower

1

Swiss inflation eased more than expected

By Arnaud Masset

Switzerland’s headline inflation missed expectation in November. The consumer price index rose only 0.9%y/y, following an uptick of 1.1% in the previous month, while market participants anticipated an increase of 1%y/y. This is the lowest reading since April 2018, when inflation rose 0.8%y/y. More worryingly, the core gauge that excludes the most volatile components such as energy products eased to 0.2%y/y, compared to forecast of 0.4%.

There are increasing signs that the Swiss economy is suffering from the rise in geopolitical uncertainty. As suggested by the last GDP figures, the slowdown in European growth, and international trade, had a significant impact on the Swiss economy. The gross domestic product fell 0.2%q/q in the third quarter, compared to an expected increase of 0.4% and an improvement 0.7% in the previous one. Against such a back, there is no doubt that the Swiss economy will continue to suffer. In its upcoming Quarterly Bulletin, which will be release on December 12, the Swiss National Bank (SNB) will doubtlessly adjust both its inflation and growth forecast to the downside.

On Tuesday, despite a sell-off in equities the greenback fell across the board, with the Dollar index giving up 0.64%. The Swiss franc was up 0.43%, while the single currency rose 0.55%. Investors are slowing reducing their exposure to the buck amid mounting expectations that the Fed is almost done with its hiking cycle.

Excitement over US-China truce fades

By Vincent Mivelaz

Asian equities lost steam, as optimism over US-China trade softens. Japan’s Nikkei 225 is closing at -2.39% while Australian ASX 200 and South Korean Kospi indexes closed at -1.01% and -0.12% respectively. Hong Kong’s Hang Seng improved by +0.29% while China mainland CSI 300 gained +0.21%. Investors are realising that US-China relations have a long way to go. Tariffs of 25% on over USD 200 billion of Chinese imports are on the way. Chinese authorities are expected to send its negotiators as early as next week while US Trade Representative Robert Lighthizer is gearing up to represent the White House. On the agenda are: reduction of Chinese auto tariffs against US manufacturers (currently: 40%); purchase of US agricultural products; Chinese industrial subsidies; and intellectual property practices.

Peoples Bank of China Governor Yi Gang confirmed he will support the Chinese economy by further monetary policy easing. This will allow the Chinese Renminbi to recover slightly, which lowers the risk of further capital outflows. USD/CNY has lost 1.72% this week, trading at 6.8408 and approaching 6.8350 short-term.