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Swiss government gets a slap in the face, Strong UK data seems to persist

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Swiss government gets a slap in the face

(Arnaud Masset, market analyst)

Swiss voters massively rejected the government’s corporate tax proposal on Sunday as the text was rejected by almost 60% of voters. The reform was aimed at keeping Switzerland fiscally attractive for multinational companies and financial holdings. The solution proposed by the government did not convince the Swiss people and now forces the government to return to the drawing board. The government is now in a hurry to find an alternative solution as the current special tax regime will be abolished in 2019.

Investors did not welcome the news and Swiss equities started the week on the back foot as the reform’s rejection cast a shadow on the economic outlook. Indeed, Switzerland has a lot at stake here as several cantons base their economic models on those tax advantages. The SMI was trading in negative territory on Monday, while European equities were blinking green on the screen.

Even though it is a serious drawback for the Swiss economy, we believe it is a bit early to ring the alarm as the government still has time to come up with a plan B. They will however have to come to the table with a more balanced solution to straighten the situation. This morning, EUR/CHF held steady at around 1.0670. Investors are not yet ready yet to move away from the safe haven currency, signalling that investors are still confident that Switzerland will find a sustainable solution that will make both businesses and tax payers happy.

Strong UK data seems to persist

(Yann Quelenn, market analyst)

Financial markets will closely scrutinise the UK data due to be released tomorrow morning. We expect inflation to come in higher than the prior December figure of 1.6%. Bullish pressures on consumer prices are on the rise as we believe that the pound is still largely undervalued.

We also believe that tomorrow’s PPI, which currently stands at 2.7% y/y will increase above 3%. Looking at the data, a jarring statement needs to be made: It seems as though Brexit has in fact been the best thing for UK economics in a while.

In addition, the weak pound is definitely helping the Bank of England which has made up some time in the currency war as Brexit fears help UK exports. The cable has largely bounced back higher since reaching 1.20 in mid-January. We therefore maintain our bullish view of the pound as we believe that financial markets are still pricing in a hard Brexit. We are also reloading our bullish positions amid the ongoing UK recovery.

A hard Brexit should not happen and we believe that negotiations will take place with the EU.

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Source: https://en.swissquote.com/fx/news
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