Swiss watch exports collapse

Forex News and Events

Continued collapse of Swiss watch exports (by Yann Quelenn)

Swiss watch exports continue to head south as today’s report indicated a significant decline of 14.2% y/y in July, according to the Federation of the Swiss Watch Industry. The biggest drop was in Hong Kong, down 32.7% y/y, representing the 18th consecutive month of downturn. In Europe, sales have also largely declined - in France for example by 27.8%, certainly due to growing fear following the recent atrocities. The Asian market however, is the one that is most at stake and took an especially big hit with the announcement that Chinese authorities are regulating gift giving. In terms of volumes, all price ranges have been affected by the decline, in particular below 200 francs and above 3000 francs.

The reason why demand is being pushed lower is largely due to an overvalued franc, which is unfortunate for manufacturers as we will not see any pick-up in demand as long as the currency remains so strong. Downside pressure on the Euro is very likely, markets expect further stimulus from the ECB and the Chinese economic slowdown may be deeper than expected.

However, there is one silver lining and that is that the Swiss trade balance still remains largely positive, even though it declined to CHF 2.93 billion from CHF 3.55 billion. In other words, the situation is still manageable and importing inflation may be one solution for Switzerland, even though it would mean sacrificing the exports’ economy. With mounting evidence that the strong CHF is damaging Switzerland’s domestic economic, there will be increased calls for the SNB to defend the CHF. However, the SNB is running out of options, having already exhausted many policy tools.

CBT to provide micro-tuning

The Central Bank of Turkey (CBT) is expected to hold the benchmark rate at 7.50% and lower overnight lending rate 25bp to 8.75%. The monetary authority is in an extremely challenging position sandwiched between divergence inflation and growth outlook and complex social/political backdrop. Whatever the CBT does it need to convey control and not exude panic or ambiguity. Hence, we expected micro tuning in the lending rate and potentially a cut to benchmark rate. The growth side continued to deteriorate as the Industrial production slowed to 1.1% from 5.6% y/y and PMI manufacturing firmed below the 50 threshold. Inflation continue to accelerate challenging 8.79% y/y on the back of volatile food prices. In the July inflation report press conference CBT governor Cetinkaya indicated an expected jump in inflation yet kept its 2016 forecasts unchanged indicated a reversion. We anticipate additional cautions cuts as the CBT focusing on core inflation trend to support weakening growth outlook.

Hungary on the sidelines

Elsewhere, the National Bank of Hungary MPC is expected to hold interest rates at 0.90%. Inflation dynamics remain weak while GDP growth has outpaced expectations. Healthy labor markets and rising real wages has kept the domestics outlook bright. So far any Brexit related weakness has not been imported and given the solid data from Europe, unlikely to have a dramatic effect moving forward (although risks remain). Today pause should be followed by further easing in 2017.

 

Today's Key Issues	Country/GMT
Aug P Markit France Manufacturing PMI, exp 48,8, last 48,6	EUR/07:00
Aug P Markit France Services PMI, exp 50,5, last 50,5	EUR/07:00
Aug P Markit France Composite PMI, exp 50,4, last 50,1	EUR/07:00
Jun Leading Indicator, last 90,8	ZAR/07:00
Aug Consumer Confidence Index, exp 66,5, last 67,03	TRY/07:00
Aug P Markit/BME Germany Manufacturing PMI, exp 53,6, last 53,8	EUR/07:30
Aug P Markit Germany Services PMI, exp 54,4, last 54,4	EUR/07:30
Aug P Markit/BME Germany Composite PMI, exp 55,1, last 55,3	EUR/07:30
Aug P Markit Eurozone Manufacturing PMI, exp 52, last 52	EUR/08:00
Aug P Markit Eurozone Services PMI, exp 52,8, last 52,9	EUR/08:00
Aug P Markit Eurozone Composite PMI, exp 53,1, last 53,2	EUR/08:00
BOE Indexed Long-Term Repo Operation Results	GBP/09:40
Aug CBI Trends Total Orders, exp -10, last -4	GBP/10:00
Aug CBI Trends Selling Prices, last 5	GBP/10:00
ECB's Coeure, Lane, Smets on Panel in Geneva	EUR/10:30
Aug 23 Benchmark Repurchase Rate, exp 7,50%, last 7,50%	TRY/11:00
Aug 23 Overnight Lending Rate, exp 8,50%, last 8,75%	TRY/11:00
Aug 23 Overnight Borrowing Rate, exp 7,25%, last 7,25%	TRY/11:00
Aug 22 FGV CPI IPC-S, exp 0,46%, last 0,48%	BRL/11:00
Conference Board China July Leading Economic Index	CNY/13:00
Aug P Markit US Manufacturing PMI, exp 52,6, last 52,9	USD/13:45
Bank of England Bond-Buying Operation Results	GBP/13:50
Aug Richmond Fed Manufact. Index, exp 6, last 10	USD/14:00
Aug A Consumer Confidence, exp -7,7, last -7,9	EUR/14:00
Jul New Home Sales, exp 580k, last 592k	USD/14:00
Jul New Home Sales MoM, exp -2,00%, last 3,50%	USD/14:00
Jul Current Account Balance, exp -$3774m, last -$2479m	BRL/18:00
Jul Foreign Direct Investment, exp -$500m, last $3917m	BRL/18:00

 

The Risk Today

Peter Rosenstreich

EUR/USD's buying pressures are still lively. Buying pressures seem important. Strong resistance is given at 1.1428 (23/06/2016 high). Hourly support can be found at 1.1046 (05/08/2016 low). Expected to increase again. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase

GBP/USD is pushing higher inside downtrend channel. Yet, the medium-term bearish momentum is lively. Hourly resistance can be found at 1.3372 (03/08/2016 high). Hourly support can be found at 1.3024 (19/08/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY is bouncing around the 100-mark. The technical structure suggests that the pair is gaining momentum to head further lower. Strong support given at 99.02 (24/06/2016 low). Hourly resistance is given at 102.83 (02/08/2016 high). Selling pressures should continue. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is reversing. Hourly support given at 0.9522 (23/06/2016 low) is on target. Hourly resistance can be found at 0.9659 (09/08/2016 high). Expected to show continued bearish pressures. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support:

EURUSD	GBPUSD	USDCHF	USDJPY
1.1616	1.3981	1.0093	109.14
1.1479	1.3534	0.9956	107.9
1.1428	1.3372	0.9775	102.83
1.1315	1.3123	0.9572	100.13
1.1046	1.2851	0.9522	99.02
1.0913	1.2798	0.9444	96.57
1.0822	1.188	0.9259	93.79