The absence of economic indicators last week didnt matter for those trading the Swiss franc as the real market momentum was found on the pandemonium in capital markets as crude soared, equities plummeted and international conflicts escalated. Though these same issues are not likely to be alleviated this week, there may be more reason to buy the swissie than just seeking refuge from unwanted volatility.
Three economic releases are scheduled for this week and all three hold strong market moving potential. Tuesday kicks the data flow off with May retail sales. Coming off of the wild fluctuations seen over the previous months, as the falling of Easter has skewed the accuracy of the indicator, the normalizing effect for May will give the soundest report of Swiss consumer spending habits that the nation has to offer. Though there is no agreed upon market consensus, the steady pace of contractions in unemployment, coupled with the recent strength in factory activity should have given the residences of the small country ample reason to have optimistically turned their larger wages back into the economy. The next two indicators on deck are Thursdays trade balance and producer & import prices figures, both for June. The goods and services surplus is expected to grow for the fourth consecutive month to SFr 1.30 billion from SFr 1.21 billion. Expectations are well founded given the 15-year high in German business sentiment, which is likely to translate in greater demand from materials produced in Switzerland. However, there are a few risks to the expected positive growth in the balance. Significant price increases in both gasoline and crude, as well as growing domestic demand for foreign-made goods, could help imports to catch up to exports. Finally, for inflation, producer and import prices for June are expected provide a mixed picture on different time frames. For the month of June, prices for goods received at the factory gate and those that come across the boarder are actually expected to contract. This prediction for slower price growth may be somewhat optimistic however, as prices for raw materials rebounded for the month and firms who were footing the bill were likely tempted by consumers who are more agreeable to taking on some of the burden.
Last week was an excellent one for the Swiss currency in terms of its attractiveness in relation to other majors. As tensions situation between Israel and Palestine went from a one-man hostage situation to bombardments, investors were left scrambling to find reliable strongholds for their capital. When global equity, bond, futures and commodities are fluctuating violently, there are a few reliable places to harbor capital. Two of those places are gold and Swiss banks, both of which support a run up in the franc. As capital flows over electronic borders into Swiss accounts, the general exchange of currency favors the unit in the pairs that are swapped. Though there was a large-scale flight from risk, the swissie did not respond in kind on the spot market. It had actually lost 125 points of ground against the benchmark US dollar in choppy trade over the week, but the validity of the fundamentals remains nonetheless. Should this weeks indicators impress, the leverage provided by the safe-haven status could move the Swiss unit sharply against other world currencies.
