Weakening trade doesn’t budge SNB
By Arnaud Masset
Switzerland’s foreign trade slumped in the summer, but not enough to make the Swiss National Bank revise its interest rates. In its decision today to keep monetary policy unchanged, the SNB noted that the Swiss franc is “highly valued” and acknowledges that the Swissie “appreciated noticeably” since its last policy assessment in June. The central bank reiterated its promise to intervene in the forex markets to weaken the CHF as required. Don’t look for Swiss rates to rise anytime soon.
Weak demand from the US and Asia knocked Swiss exports, which rose 0.6% monthly in August as July’s exports were downwardly revised to -2% from a previous estimate of -1.4%. Imports contracted 2.8% monthly, compared to -1.3% in July. The trade surplus rose 17% to CHF 1.4 billion from July to August. The CHF appreciated in late August, so expect further contraction of trade in the coming months.
The SNB highlighted risks posed trade tensions and political uncertainties, mostly in Europe. On the positive side, the bank also acknowledged solid momentum in the domestic and international economy. Its inflation forecast for Q3 has been revised to the upside, but its 2019 forecast to the downside.
Emerging markets’ rebound
By Vincent-Frédéric Mivelaz
Emerging markets had a rough year so far, with EM currencies facing strong depreciation and a broad-based market selloff in the face of trade wars and interest hikes. However, markets now appear to be shrugging off these worries, with the US Dow Jones Industrial Average reaching an 8-month high at 26,405, on the verge of breaking its all-time high of 26 January. We therefore anticipate a broad-based recovery phase for EM economies.
Constructive development in the US-Mexico trade dispute provides positive signs. And hikes by the Turkish and Russian central banks have stabilised their economies amid rising inflation and strong currency selloffs. Confidence in EM central banks is greater today and foreign debt holdings of major EM countries (30% of EUR- and USD-denominated debt on average) appear to be less relevant for investors. We see further potential for EM currencies.
South African rand up
By Vincent-Frédéric Mivelaz
The South African Reserve Bank is today expected to maintain its Repo rate stable at 6.50%, as inflation within 3-6% is improving the country’s economic outlook. The bank will avoid raising rates for now, due to current weak economic condition. However, growth is expected to improve, as the country will benefit from a weaker currency, thus improving exports. USD/ZAR is currently trading at 14.45, as EM currencies are strengthening across the board. The pair is expected to head to 14.30 in the short-term.