Has the SNB already changed course?
There’s no denying that the Swiss franc is very strong at the moment. It ended the year close to an all-time high against both the euro and the US dollar. Although the franc lost a little ground in early 2024, its rise has put considerable pressure on Swiss exporters, hitting watchmaking, pharma and machine tools the hardest. A strong franc makes Swiss products more expensive on foreign markets, which in turn makes Swiss exporters less competitive. So once again, there is mounting pressure on the Swiss National Bank (SNB) to change its monetary policy. Swiss politicians, economists and industry representatives have all called for the SNB to loosen its monetary policy, particularly given the economic slowdown elsewhere in Europe. They’ve all said that urgent action is needed to protect exporters and keep the Swiss economy competitive.
For nearly 18 months now, the SNB has been underscoring the benefits of a strong franc in curbing imported inflation. That policy seems to be paying off – inflation hasn’t soared like it has in neighbouring countries and is even back in the SNB’s comfort zone. But despite the risk of a slight uptick in price growth in early 2024 as a result of rising electricity costs and rents and the VAT hike, recent signs suggest that the SNB is starting to change course. It has been expanding its balance sheet since the start of the year, which could mean it’s getting ready to loosen its monetary policy. The expansion was small and driven mainly by an uptrend in the markets where the SNB invests its foreign currency reserves. But sight deposits have grown as well – and this is often a more reliable indicator of the SNB’s moves on forex markets. At the end of last week, sight deposits stood at CHF 482 billion, a rise of CHF 20 billion since end-December. Nonetheless, a more decisive move by the SNB might be needed, as the charts don’t yet show a trend reversal in the Swiss franc.
An overheating S&P 500
The S&P 500 keeps hitting new highs, and a number of indicators now suggest that the market is on the verge of a correction. Investors have become complacent and extremely bullish – both signs that a correction is on its way. And from a technical standpoint, the flagship US index isn’t faring as well as it used to either: equities are clearly overbought and the index is struggling to break through key resistance levels. However, volatility – which, when high, is another indicator that a consolidation is likely – is extremely low, which has prompted investors to be cautious in the short term. Lastly, the P/E ratio on the S&P 500 has reached 21. In light of all these factors, we don’t think it’s worth “chasing” after this market and will wait for the consolidation before investing more cash in US stocks.
This week’s figure : 2,5%
Although it’s still low, Switzerland’s unemployment rate is heading upwards, hitting 2.5% at end January – a sign that the Swiss economy has slowed slightly. As a reminder, unemployment bottomed out at 1.9% in summer 2023.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
