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Swiss Manufacturing Weakness Hints at Euro-Crisis Contagion

Swiss Manufacturing Weakness Hints at Euro-Crisis Contagion

Benjamin Spier, Technical Strategist

THE TAKEAWAY: Swiss PMI comes in lowest since 2009 -> Retail sales only grow 0.1% -> USD/CHF hits new 2-year highs

Swiss economic indicators have suddenly taken a turn for the worse as recent surveys showed manufacturing slowed to its lowest level since 2009 and retail sales barely rose. These signs of contraction were surprising as they came only one day after the Swiss GDP for Q1 was reported to have unexpectedly expanded by 0.7%.

Swiss Purchasing Manager’s Index for manufacturing was reported to have dropped to 45.4 in May from the previous month’s 46.9, according to the Credit Suisse Group AG. The average expectation was for the PMI to rise to 47.4, and any index below 50 shows a contraction in manufacturing.

Swiss retail sales (real) only grew 0.1% in April, compared to the 4.7% growth in March. Sales of food, beverages and tobacco fell 2.5% over the month while non-food and non-fuel sales grew by 0.4%, according to the Swiss Statistics Office.

Before today, the Swiss economy was showing signs of economic growth for the rest of 2012. Besides for a growth in Q1 GDP, the KOF leading indicator and the UBS consumption indicator were both reported better than expected earlier in the week. The OECD also projected a growth in the Swiss economy for the second half of 2012.

Today’s negative PMI could be the result of the pressures from a slowing European services and manufacturing. Switzerland relies on exports to its European neighbors to bolster its economy.

That is why the Swiss Natioonal Bank has been fighting off investors looking towards the franc as a safe haven from the falling euro. The bank currently maintains a 1.2000 floor in EUR/CHF to stop an overinflated franc from slowing exports to Europe. The SNB will meet again on June 14 for its next monetary assessment.

_Swiss_Manufacturing_Weakness_Hints_at_Euro-Crisis_Contagion_body_usdchf.png, Swiss Manufacturing Weakness Hints at Euro-Crisis Contagion

The Swiss franc unexpectedly strengthened against the US dollar following the weak PMI and barely positive retail sales. The move could be seen as a small correction from earlier session gains in USD/CHF, the pair is currently setting new 2-year highs.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.