Higher Swiss Consumption Gauge Fuels Worries Over Franc
THE TAKEAWAY: UBS Swiss consumption indicator at highest level since June 2011 -> New car registrations and better consumer sentiment bring rise in gauge -> Swiss franc slightly higher
The UBS Swiss Consumption Indicator came in at its highest levels since June 2011. The indicator was reported at 1.41 for April, compared to the previous month’s 1.20 level, revised lower from a previously estimated 1.22.
The higher indicator was attributed to a 4.5% rise in new car registrations from the previous month and an improvement in consumer sentiment. Business activity also improved for the first time since June of 2011. The indicator is based on new car sales, business trends in retails, overnight hotel stays by Swiss nationals in Switzerland, consumer sentiment and credit card transactions. A larger indicator indicates growing consumption and the long-term average is 1.50.
The increased consumer indicator further points to an expanding Swiss economy as the ECB forecasts an economic contraction in the Eurozone, which could further sentiments that see the franc as a safe haven from the euro. This adds to the worry that was recently address by Swiss National Bank President Thomas Jordan, who recently said that a government-led panel is considering controls on capital inflows as a way of stopping further franc strengthening against the euro. Capital controls would follow a 15-month euro buying effort by the SNB to keep EUR/CHF from dipping below the 1.200 floor created by the central bank. Capital control or other measures like a negative interest rate would imply that the SNB is worried about their continued ability to maintain the 1.200 floor.
Jordan also said that the SNB doesn’t expect Greece to leave the euro, but they are still ready for turbulent economic times ahead. The weekend polls that placed the pro-bailout New Democracy party first among Greek voters brought a small boost for the euro against the Swiss franc during the market’s open on Sunday night.
EUR/CHF moved slightly lower following the release, but remains above this week’s 1.2015 support level. USD/CHF also moved slightly lower on the news of increased consumer spending.
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