Outlook and Recommendation
Revisions to the fourth-quarter GDP figures confirmed the original estimate, the US economy advanced at the fastest pace in six quarters. Over 90% of the advance was accounted for by inventory rebuilding and stronger motor vehicle sales, as supply chain disruptions of the Tohoku earthquake dissipated. However, stockpiles remain historically low, and turnover ratios suggest restocking is occurring at a slower pace than final demand, a reflection of conservative business sentiment. Amid an uncertain global economic outlook, US economic indicators have been more upbeat in recent months, reducing some of the downside risks. This should not, however, be used to extrapolate a stronger growth pattern for the year. The US economy continues to face cyclical and structural headwinds, amplified by the ongoing European debt crisis and the recent surge in oil prices. Aside from a still-cautious sentiment, domestic challenges include fiscal consolidation, political discord, and uncertainty over the presidential election results, and ongoing deleveraging.
The first few months of 2012 have been marked by a risk rally, where equities and commodities have been strong and the US dollar (USD) has weakened materially. The foundation for this was laid by G4 central bank policy that has succeeded in decreasing much of the tail risk than hung over markets in 2011. Developments in Europe continue to be a key concern; however, markets have rewarded the euro (EUR) as several important hurdles have been passed. All is not solved, but shifts in central bank policy, economic fundamentals and investor sentiment have all soothed near-term fears. On the back of this, volatility across asset classes has collapsed, adding to the incentive to participate in the carry trade.
The Swiss economy will stagnate this year; we expect weak external demand and investment activity to limit growth to less than ¼%. Real exports fell 3.4%m/m in January (in seasonally adjusted terms) as the manufacturing PMI declined to 47.3. The PMI has sat below theneutral-50 threshold since September. Like many of its wealthy European peers, the economy should register a moderate pace of recovery next year, advancing by around1¾%. Deflation remains a considerable threat which could push the economy into recession; the consumer price index fell for a fourth consecutive month in January on a year over-year basis, with the pace of decline accelerating to0.8% y/y. If deflationary pressures intensify over the coming months, the SNB will likely opt to raise the currency floor, though with oil prices rising steadily year-to-date, the likelihood of this occurring has diminished. The next monetary policy announcement is on March 15th. Swiss fundamental and financial metrics remain very strong; the fiscal account is roughly balanced, public debt is declining and government bond yields are lower than their German and US counterparts. The USD/CHF should trade around the 0.92 level heading towards 0.97 at the end of the second quarter.
Authorities at the Swiss National Bank(SNB) will remain committed to preventing excessive appreciation of the Swiss franc (CHF) over the forecast horizon. Investor confidence in the SNB's ability to maintain the current floor (currently set at CHF 1.20 per euro) is strong and the foreign exchange target is regarded as a credible monetary policy instrument
March Major Economic Events
Real Retail Sales (YoY)
Unemployment Rate n.s.a (MoM)
Consumer Price Index (MoM)
Consumer Price Index (YoY)
ZEW Survey - Expectations
UBS Consumption Indicator
KOF Leading Indicator
Consumer Price Index (YoY)
Consumer Price Index Ex Food & Energy (YoY)
Gross Domestic Product Annualized
Gross Domestic Purchases Price Index
USD/CHF Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3