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Swiss economy is still suffering as Franc shock is slipping through real economy. Swiss National Bank (SNB) unexpectedly removed 1.20 EUR/CHF peg, leading to heavy appreciation in Franc's value.
- CPI and PPI remains heavily deflated this year. Today producer and import price indices for May was released that showed drop of 6% in price levels from a year ago. Such pace of fall was last registered during 2008/09 financial crisis.
Good news is that after devastating performance so far this year, retail sales in April showed some signs of comeback, as if economy is yawning back from winter hibernation.
- Real turnover in the retail sector rose by 1.6% in April 2015 compared with April 2014. However there was drop of -0.7% in nominal terms. Real, seasonally adjusted turnover in the retail sector rose by 2.1% in April 2015 compared with March 2015 Retail sales of food, drinks and tobacco registered a decline in nominal turnover of -0.4% in nominal terms, nonfood sector grew sharply by 3.9% in real terms.
Impact on Franc -
- Franc yield is the lowest in the world given deflationary pressure in Swiss economy. Swiss 10 year yield is trading at 68 basis points discount to benchmark German yield. Yield is expected to remain low for Franc unless further action from SNB push inflation expectation higher. Despite today's rebound in retail sales, import and producer prices data show deflationary pressure remains strong.
- Franc is currently trading at 0.932 against dollar. Without much action from SNB, franc is likely to keep taking cues from Dollar.
- Swiss National Bank (SNB) risks deflation to affect consumer psyche, if it fails to take further action to prevent it.
