SNB left policy unchanged, Greece close to exit

Market Brief

In Japan, the BoJ kept unchanged its asset purchased program at ¥80tn per year and maintained its assessment of the economy, saying that the economy has continued to recover moderately. The Nikkei extended gains and reached 20,174, up 0.92%. USD/JPY is currently testing the resistance lying at 123.20. On the medium-term, we expect USD/JPY to weaken further against the backdrop of disappointing US economic data. Yesterday, data from the US were mixed. The Philadelphia Business Outlook index rose to 15.2 in June versus 8 expected and 6.7 prior read. The index of US leading indicators surprised markets to the upside, jumping 0.7% in May after a similar performance in April. On the dark side, May CPI figures printed at 0.4%m/m versus 0.5% expected while Core CPI came in at 0.1%m/m – the smallest increase this year - versus 0.2% median forecast. In our opinion, the latest development in inflation trend indicate that the Fed will have to increase rate at a very moderate pace. Moreover, if the cost of living doesn’t increase in the US, it will force the Fed to start the tightening cycle from a later date. EUR/USD traded range-bound between 1.14 and 1.1350 in Tokyo after the sharp moves from yesterday. The euro will find support around 1.1220 (Fib 61.8% on May debasement) while the closest resistance can be found at 1.1467 (high from May 15).

In Brussels, EU officials called for an emergency summit after no agreement has been reached on Thursday between Greece and its creditors. European futures stabilised this morning with the DAX is 0.18%, the CAC down -0.07%, the Footsie down -0.01% and the SMI up 0.25%.

In Asia, mainland Chinese equities are in correction mode and dropped another 4% today as investors wonder whether the stock bubble is going to burst soon. The Shanghai Composite is down -3.97% while its tech-heavy counterpart, the Shenzhen Composite retreats -4.20%. In Australia, equities gain 1.31% after having lost 1.21% during the previous session. AUD/USD failed to stay above the 0.7814 support level (Fib 38.2% on May-June sell-off). The Aussie is now back into its 4 weeks range between 0.76 and 0.78. Next week, we expected AUD/USD to be mainly driven by the US dollar as the economic calendar will be very light.

In Switzerland yesterday, the SNB held its June monetary policy meeting and the outcome was mostly in line with expectations. The central bank maintained the 3-month Libor target range at between -1.25% and -0.25% and interest on sight deposit at -0.75%. The SNB also kept unchanged the negative interest exemption rule. On the data front, the bank expects inflation to reach the lowest point in Q3 2015 at -1.2%; they also revised the inflation forecast higher for the subsequent period to -1% in 2015 and -0.4% in 2016; positive inflation figures should make its comeback in 2017. On the monetary policy front, the SNB reiterated its view that the Swiss franc was overvalued and warned the markets that some foreign exchange market interventions are not ruled out. However, we don’t think that the SNB will take the risk to intervene actively in the Forex market as the Bank is playing against bigger players – the ECB and its QE program.

Today’s calendar is light with only some economic data from Canada (CPI, retail sales) and IBGE inflation from Brazil. Fed’s William and Mester will receive high attention after Yellen’s dovish speak.