SNB to start normalizing monetary policy in 2018
|Fundamental Analysis
CHF
“2018 seems that it may be the year for the SNB to start normalizing policy”.
- Nadia Gharbi, Pictet & Cie
As expected, the Swiss National Bank left its interest rates at historic lows at its monetary policy meeting on Thursday. To avoid further appreciation of the Swiss Franc, policymakers kept the deposit rate at -0.75%, in line with market forecasts. Moreover, the Central bank said it would intervene in the foreign exchange market if necessary, pointing to the “significantly overvalued” Franc. However, The Swiss Franc traded little changed against the Euro this year but rose around 1.9% against the US Dollar. The Swiss Franc is highly expected to strengthen sharply against most rivals in the near future amid a high-risk aversion environment created by significant uncertainties coming from the upcoming European elections, Donald Trump’s trade policies and Britain’s exit from the European Union. Earlier this week, The Prime Minister of the Netherlands Mark Rutte lost to its populist rival Geert Wilders during the parliamentary vote. His loss sent shockwaves across Europe, thus adding further uncertainties. In a statement, the SNB also pointed to improving inflation and revised up its 2017 inflation forecast to 0.3%, up from its December estimate of 0.1%. The pace of economic growth in Switzerland is likely to accelerate this year, according to the latest KOF Economic Barometer and PMI.
GBP
“The BoE sounds 'less dovish' rather than the expected 'less hawkish'. Interesting”.
- Mike van Dulken, Accendo Markets
The Bank of England left its monetary policy unchanged at its March meeting on Thursday. Eight of nine policymakers voted to keep the key interest rate at the record low level of 0.25%. Kristin Forbes, who is due to leave the BoE in June, cast the sole vote in favour of raising interest rates to 0.50%, adding that she was feeling uncomfortable keeping interest rates on hold. According to her, the post-Brexit economic slowdown has not materialised yet. Analysts suggest that the key policy rate will remain unchanged until the Brexit situation becomes clearer. All of the BoE’s officials voted anonymously to maintain the asset-buying plan at 435 billion pounds, as markets expected. At the meeting, policymakers stated that slow wage growth and rising inflation, driven by the sharp fall in the value of the Pound, started to put downward pressure on British consumers. Earlier this week, the ONS reported that wage growth fell to 2.2% during the three-month period to January. This drop called into question the BoE’s 2017 wage growth forecast of 3%. The BoE also said that it could tolerate a quicker pace of price rises, following a decade of below-target inflation. After the release, the Pound rose to 1.1518 against the Euro and 1.2363 against the US Dollar.
USD
“Builders are buoyed by President Trump’s actions on regulatory reform, particularly his recent executive order to rescind or revise the waters of the U.S. rule that impacts permitting”.
- Granger MacDonald, NAHB
The number of Americans who filed for unemployment insurance last week decreased to 241,000, a survey from the Labor Department revealed on Thursday, following the preceding week’s 243,000 filings. Meanwhile, market analysts anticipated a slight rise to 245,000 during the reported period. The number of new residential building permits issued in February fell 6.2%, the Census Bureau revealed on Thursday. Nevertheless, housing construction advanced 3% and was mainly driven by one-family house applications, whose growth hit a record since September 2007. The spike in construction was mainly attributable to the robust job market and healthier finances. Yet, high mortgage costs and increasing real estate prices remain an issue for potential home buyers. Overall, the situation in the home-building industry remains positive, as the housing market index reached a 12-year high. The diffusion index fell to 32.8 in March, the Philadelphia Fed reported on Thursday. Nonetheless, it remained positive for eight consecutive months. The difference between firms who reported an increase in activity against decrease was 33%. Similarly, the difference between firms reported a rise in employment against unemployment was 17%. So, in general, regional manufacturers maintained optimism.
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