Swiss Inflation Unexpectedly Slows, Vindicating SNB Rate Cut

Economic

Summary:

Consumer prices rose 1% from a year ago in March; est. 1.3%.

Swiss inflation unexpectedly eased — vindicating the central bank’s surprise interest-rate cut last month and suggesting more might be coming.

Consumer prices rose 1% from a year ago in March, the statistics office said Thursday. That’s the lowest reading in 2 1/2 years. Economists had predicted an acceleration to 1.3%.

Source: Swiss Federal Statistical Office

The Swiss National Bank wrong-footed investors last month by reducing its key rate. It was the first such step by a Group-of-10 central bank since the global inflation shock, with outgoing President Thomas Jordan saying he sees “very little risk” that price gains will rebound past the 2% upper end of the institution’s target range.

Still, in its most recent forecast the central bank had projected a slight quickening in inflation over the second and third quarters. According to economists, this is mainly due to rent hikes.

The Swiss franc fell to the weakest level against the euro since June after the data. It has weakened almost 1% since last month’s surprise rate cut, extending the biggest depreciation among G-10 peers.

It was trading 0.6% weaker at around 0.98 per euro as of 9:48 a.m. in Zurich.

“The decline of the inflation rate is surprising as the exchange rate depreciated in the last few months,” said Karsten Junius, chief economist and head of economic and strategy research at Bank J. Safra Sarasin in Zurich. “It makes another rate cut in June and September extremely likely. It confirms that risks to the inflation target are on both sides of the corridor, and that further rate cuts are needed to balance these risks.”

The March slowdown in Swiss inflation was primarily due to holiday lets, cars and private means of transportation, according to the statistics office. The so-called core gauge, which strips out volatile elements like energy and food, also decreased.

“The decline was broad-based, meaning that inflationary pressures are falling faster than expected in Switzerland,” said Maxime Botteron, an economist with UBS Group AG in Zurich. “That said, the impact on the monetary policy outlook should be limited. We still expect the SNB to lower its policy rate by 25 basis points both in June and September.”

SNB Vice President Martin Schlegel said last month that almost all of Switzerland’s consumer-price growth is due to rising prices for services. Still, he maintains that price stability is ensured over the medium term.

Data from the surrounding euro area showed prices there rose an annual 2.4% last month. Based on the European Union’s harmonized measure, Switzerland’s gauge came in at 1.1%.

Source: Bloomberg

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Chandan Gupta

Traders' Opinions

Forex

Unraveling EUR/USD Trend

Exploring recent market movements, the EUR/USD exchange rate exhibited softness following a decline in March's inflation data. However, it's essential to acknowledge prevailing inflationary trends that could mitigate any potential weakness in the currency pair.

Inflation Data Insights

According to Eurostat, the Eurozone's Consumer Price Index (CPI) for March recorded a year-on-year decline to 2.4% from February's 2.6%, falling below market expectations of 2.5%. Core inflation also witnessed a dip to 2.9% from 3.1%, below market forecasts of 3.0%. While these figures prompted a retracement in EUR/USD rates, detailed analysis suggests that any weakness attributed to inflation may be limited.

Analysts' Perspectives

Commentary from analysts at Commerzbank sheds light on the inflationary landscape in the Eurozone. They note a significant rise in core inflation since the year's onset, indicating a robust upward trend in the core index. The diminishing impact of energy prices, coupled with substantial wage increases, contributes to this resurgence in core inflation. Projections anticipate core inflation to continue declining modestly on an annual basis until mid-year, with estimates suggesting a long-term inflation rate of 3%, surpassing the European Central Bank's (ECB) 2% target.

Policy Implications

Forecasts anticipate the ECB to implement its first interest rate cut in June, aiming to counterbalance inflation dynamics. However, the central bank is expected to proceed cautiously, considering the Eurozone's persistent services inflation, which remains steady at 4.0%. Vigilance regarding wage negotiations and future interest rate adjustments remains a focal point for the ECB, indicating a gradual approach to rate reductions.

Market Expectations

Amidst mounting indicators pointing towards an interest rate cut by the ECB, market expectations suggest a gradual reduction in interest rates, with the deposit rate potentially decreasing to 3.0% over four steps. Nevertheless, the ECB's decision-making process may undergo reassessment in light of inflation rates exceeding expectations, potentially influencing future rate hike considerations.

EUR/USD Technical Analysis

Examining the technical landscape of EUR/USD, recent weeks have seen the currency pair entrenched in a strong downtrend, culminating in a new monthly low of 1.0725. Despite this downward trajectory, momentum appears to have reached a temporary impasse, with the US dollar signaling overbought conditions on a daily basis. Short-term price targets hover around 1.0830, coinciding with the 50- and 200-day moving averages. EUR/USD Rebound Shows Limited Strength Amid Market Activity_1

EUR/USD Rebound Shows Limited Strength Amid Market Activity_1

Looking ahead, the bearish outlook for EUR/USD remains prevalent, with attention focused on the critical support level at 1.0690, representing its Valentine's Day low. A breach below this level could pave the way for further downside movement towards the main support level at 1.0600. Conversely, a notable shift in the trend trajectory necessitates a move towards the 1.1000 resistance level.

Conclusion

Navigating the complexities of EUR/USD trends requires a comprehensive understanding of economic fundamentals and technical indicators. While recent inflation data may have influenced short-term market sentiment, overarching inflationary trends and ECB policy decisions are pivotal in shaping the currency pair's trajectory. By combining analytical insights with prudent risk management strategies, traders can navigate the EUR/USD landscape with confidence and foresight.

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Samantha Luan

Economic

The opening ceremony of the Boao Forum for Asia (BFA) Annual Conference 2024 was held in Boao, south China's Hainan Province on Thursday, with China's top legislator Zhao Leji stressing China's economic potential, appealing to international investors and calling for Asia solidarity and cooperation for regional prosperity in his keynote speech.

Zhao, chairman of the National People's Congress Standing Committee, highlighted that China is pursuing a path of high-quality development and is deepening reform and opening up, which he said will provide great development opportunities for Asia and the world.

'Investing in China is investing in the future’

China has set an economic growth target of around five percent for 2024 and the country's GDP grew by 5.2 percent last year, one of the highest among major economies. The Chinese economy has accounted for about one-third of global growth, and the International Monetary Fund last year projected that a 1 percentage point increase in GDP growth in China will lead to a 0.3 percentage point increase in other Asian economies.

To transform its economy and achieve sustainable development, China now is deepening reforms. For example, China has pledged to further shorten the negative list for foreign investment, remove all restrictions on foreign investment access in the manufacturing sector and deliver national treatment for foreign businesses.

On March 22, the Chinese Commerce Ministry rolled out the first negative list for cross-border trade in service sectors at the national level, in which sectors that are not listed are, by default, open to foreign service suppliers under the same conditions as for domestic service suppliers, a major step for China's further opening up.

China also promised to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. Official data shows that China's installed solar capacity accounted for nearly half of the world's, the number of new energy vehicles (NEVs) registered in China accounts for over half of the world's and at least 25 percent of the foliage expansion since the early 2000s globally came from China. Zhao said China's green and low-carbon development is expected to nurture a 10-trillion-yuan (about $1.4 trillion) market for investment and consumption each year.

In addition, new drivers of China's economy resulting from tech innovation are also growing fast. At the just concluded China Development Forum, Chinese Premier Li Qiang said the added value of China's strategic emerging industries increased from 7.6 percent of GDP 10 years ago to more than 13 percent last year, the scale of China's digital economy has exceeded 50 trillion yuan, and China has as many as 24 of the world's top 100 sci-tech innovation clusters.

"The potential of China's supersized market with over 1.4 billion people will be further unlocked," said Zhao. "Investing in China is investing in the future."

Cooperation is vital for global prosperity

Zhao also expressed optimism for Asia's development at the forum, saying it's the "most dynamic and promising" region in the world, but he warned that protectionism and a cold-war mindset are undercutting some countries' efforts for development and pushing the world toward division and confrontation.

A report published by BFA Academy on Tuesday predicted that the Asian economy will sustain a strong growth rate in 2024, accounting for 49 percent of the world's GDP, and its growth rate is expected to reach 4.5 percent.

Although the growth of Asia may face pressures from a global economic slowdown, geopolitical conflict and other factors, positive factors including accelerated digital trade, recovery of tourism and advancements of regional economic integration such as the Regional Comprehensive Economic Partnership will add new impetus to Asian trade and investment, the report predicted.

Zhao stressed that peace is a prerequisite for Asia's development in the face of intertwined and complex global security threats. He called on Asian nations to stay united, jointly stand against unilateralism and extreme egotism, oppose confrontation between different camps, and prevent the region and the world from becoming an arena for geopolitical fighting.

During the 2022 Boao Forum, China proposed the Global Security Initiative, promoting the vision of common, comprehensive, cooperative and sustainable security. In 2021, China proposed the Global Development Initiative, which promotes globalization, multilateralism and free trade, aiming to build a just, equitable, open and inclusive world.

"No country is able to develop itself behind closed doors," said Zhao, adding "We must oppose trade protectionism and all forms of erecting barriers, decoupling or severing supply chains, but instead share opportunities in opening up and seek win-win outcomes through cooperation."

Source：cgtn

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Chandan Gupta

Traders' Opinions

Forex

A Closer Look at Trading Opportunities

Reflecting on my previous GBP/USD signal from April 1st, it's clear that the anticipated bullish price action failed to materialize upon reaching the support level. However, today presents fresh opportunities as we delve into the latest signals and analyze the potential trade setups.

Today's GBP/USD Signals

With a risk factor set at 0.75%, trades can be executed between 8am and 5pm London time. Long trade ideas involve going long following a bullish price action reversal on the H1 timeframe upon touching $1.2588, $1.2558, $1.2538, or $1.2507. Conversely, short trade ideas entail going short following a bearish price action reversal on the H1 timeframe at $1.2710, $1.2732, or $1.2759.

It's crucial to set stop-loss orders 1 pip above or below the local swing high or low, respectively. Additionally, once the trade garners a 25-pip profit, adjust the stop-loss to break even and consider taking off 50% of the position. This strategy allows for prudent risk management while maximizing profit potential.

Identifying a classic "price action reversal" involves observing hourly candle closures such as pin bars, dojis, or engulfing candles with higher closes. These indicators serve as reliable signals for potential trade entries or exits.

GBP/USD Analysis

Reviewing the technical landscape, the GBP/USD pair faced formidable resistance at $1.2657 in recent sessions, signaling a potential short trade opportunity. While this resistance level held without being tested, a notable bullish development has emerged with a breakout above $1.2657. GBP/USD Bulls Challenge Critical Resistance Level at $1.2657_1

GBP/USD Bulls Challenge Critical Resistance Level at $1.2657_1

Bullish sentiment is further bolstered by the bearish reversal of the US Dollar Index from a critical resistance point, prompting a decline in the Dollar's value. This scenario paves the way for GBP/USD to advance beyond $1.2657, with a potential target of $1.2710.

To capitalize on this bullish momentum, traders should await a clear signal for entry, preferably two consecutive higher closes above $1.2663 during the London session. This cautious approach ensures alignment with market dynamics while minimizing exposure to unnecessary risk.

Market Outlook

In terms of economic releases, there are no significant events scheduled today for GBP. However, USD may experience volatility following the release of Unemployment Claims data at 1:30pm London time. Traders should remain vigilant and adapt their strategies accordingly to navigate potential market fluctuations.

Conclusion

As we navigate the intricate world of forex trading, staying attuned to market signals and adopting a disciplined approach are paramount. Today's GBP/USD signals offer compelling opportunities for traders to capitalize on prevailing market dynamics. By exercising patience and prudence, traders can enhance their chances of success while mitigating risks in a dynamic trading environment.

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Ukadike Micheal

Economic

Forex

In the week ending March 30, the number of initial claims for unemployment benefits in the United States rose by 9,000 to reach a total of 221,000, according to seasonally adjusted data. This figure represents an increase from the previous week's revised level, which was revised up by 2,000 to 212,000. Additionally, the 4-week moving average increased by 2,750 to 214,250, with the previous week's average revised up by 500 to 211,500.

The advance seasonally adjusted insured unemployment rate remained unchanged at 1.2 percent for the week ending March 23, with the number of insured unemployed decreasing by 19,000 to 1,791,000 compared to the previous week's revised level. The 4-week moving average for insured unemployment also decreased by 750 to 1,799,750, with the previous week's average revised down by 2,250 to 1,800,500.

In unadjusted data, the number of actual initial claims under state programs totaled 196,376 for the week ending March 30, representing an increase of 2,455 from the previous week. However, this increase was contrary to the expected decrease of 5,304 based on seasonal factors. The advance unadjusted insured unemployment rate remained unchanged at 1.3 percent, with the number of insured unemployed decreasing by 73,454 to 1,939,150 compared to the preceding week.

The total number of continued weeks claimed for benefits in all programs for the week ending March 16 increased by 1,035 to reach 2,038,116, while the number of weekly claims filed for benefits in all programs in the comparable week in 2023 was 1,905,338.

Notably, no state triggered the Extended Benefits program during the week ending March 16. Initial claims for UI benefits filed by former Federal civilian employees increased by 9 to 371, while claims filed by newly discharged veterans decreased by 11 to 368.

The highest insured unemployment rates in the week ending March 16 were observed in New Jersey (2.8 percent), California (2.5 percent), and Rhode Island (2.5 percent), among others. The largest increases in initial claims for the week ending March 23 were reported in Texas, Missouri, and Oregon, while the largest decreases were seen in Michigan, California, and Mississippi.

These data points provide valuable insights into the state of the U.S. labor market, indicating fluctuations in unemployment claims and trends across different states. Such information is closely monitored by economists, policymakers, and investors alike to gauge the health of the economy and its potential impact on financial markets and policy decisions.

Source: US Department of Labour

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Risk Warnings and Disclaimers

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Chandan Gupta

Traders' Opinions

Forex

An Insightful Dive into Market Dynamics

In the ever-shifting landscape of the forex market, the recent events surrounding the USD/JPY currency pair have stirred considerable intrigue. From the anticipation of the first interest rate hike in Japan in 17 years to the looming specter of potential intervention by policymakers, there's much to unpack. Let's embark on a journey through the intricacies of these developments and their implications for traders and investors alike.

Interest Rates and Their Impact on the Yen

The much-anticipated interest rate hike in Japan, after nearly two decades, failed to deliver the anticipated boost for the yen. Analysts have identified several key factors contributing to the currency's ongoing weakness, with interest rates at the forefront. Despite the historic decision, the USD/JPY pair continues its upward trajectory, hovering around the resistance level of 151.90. This trend hints at the potential for Japanese intervention in the markets.

The low interest rates prevailing in Japan, compared to global standards, have been a significant factor driving the yen's decline. With yields on 10-year Japanese bonds languishing around -0.650% after adjusting for inflation, traders are enticed to engage in carry trades. This strategy involves borrowing the yen to invest in higher-yielding assets elsewhere, adding pressure on the currency and exacerbating its weakness.

Intervention and Uncertainty in the Market

Despite the rhetoric surrounding potential intervention by Japanese authorities to support the yen, uncertainties linger. While officials have issued warnings and heightened vigilance, the transition from verbal assurances to concrete actions remains uncertain. Traders are closely monitoring signals from top government officials for tangible guidance, with movements of 10 yen against the dollar over a month serving as a key gauge.

Market Dynamics and Export Challenges

Against the backdrop of declining market volatility, carry trade strategies have gained traction among investors. The reduced risk of market fluctuations bolsters the appeal of such trades, driving bearish sentiment on the yen to its highest levels in months. However, this trend exacerbates challenges for Japanese exports, which have failed to gain momentum despite the weakened currency.

The traditional economic narrative suggests that a weaker currency should stimulate exports by making goods more competitive internationally. However, Japan's export sector has yet to reap the benefits, signaling broader structural challenges. The yen's nominal effective exchange rate has plummeted by approximately 25% since the end of 2020, with inflation-adjusted exports registering a decline of 3.3% over the same period.

Navigating Trade Balances and Investment Flows

The dynamics of trade balances and investment flows further complicate the currency adjustment process. Japanese companies increasingly opt to produce goods overseas rather than relying solely on exports, reshaping the country's economic landscape. Concurrently, capital outflows seeking higher returns abroad pose additional headwinds for the yen, reflecting a broader shift in investment preferences.

Looking Ahead: Challenges and Opportunities

As we navigate the complexities of the USD/JPY landscape, it's essential to remain vigilant amid evolving market dynamics. The potential for further interest rate adjustments in Japan, coupled with the specter of intervention, underscores the need for adaptive strategies. Moreover, addressing underlying structural issues, such as export competitiveness and investment flows, will be crucial in shaping the yen's trajectory in the coming months.

Technical Analysis and Forecasts

The trajectory of the USD/JPY currency pair is poised to persist, barring significant developments such as the upcoming US jobs report or potential intervention by Japanese authorities. The market's focus remains on these pivotal events, awaiting cues that could either sustain the current trend or trigger notable shifts.

As it stands, key resistance levels for the prevailing trend lie at 152.00, 152.55, and 153.20. These levels serve as crucial markers, indicating potential barriers to further upward movement in the pair's price. USD/JPY Anticipates Uptrend Amid Potential Japanese Intervention_1

USD/JPY Anticipates Uptrend Amid Potential Japanese Intervention_1

Traders and investors are closely monitoring these levels, prepared to adjust their positions in response to emerging market dynamics. The resilience of the USD/JPY trend hinges on a delicate balance of economic data and geopolitical factors, with any deviation likely to prompt swift market reactions.

Risk Warnings and Disclaimers

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Samantha Luan

Economic

Political

China's economy is undergoing a painful transition as Beijing tries to steer it out of a post-COVID slump and a real-estate debt crisis.

Chinese leader Xi Jinping's administration is championing what it calls the "new three" industries of solar cells, electric vehicles, and lithium-ion batteries to drive its economy.

It's already manufacturing and exporting these goods aggressively.

In particular, China's manufacturers are pumping out so many solar panels that the resulting global glut and price crash are prompting people to line their garden fences with the once-prized product.

This is just one of the industries the world is bracing for in the next phase of the "China shock."

What happened in China shock 1.0?

"China shock" was a term coined by David H. Autor, David Dorn, and Gordon H. Hanson in a 2016 paper about the country's economic rise and its impact on the world's trade and labor markets.

Once mired in poverty, Communist China started its economic reforms in 1978 when it opened up its economy and allowed for more private enterprise.

The country's growth was breakneck, with GDP growing over 80 times since then.

That growth was driven by rapid industrialization, which propelled China into the position of the world's factory. Its massive manufacturing sector churned out millions of products that it exported at low cost.

The world welcomed China into its fold, heralding an age of globalization that companies from the US and elsewhere profited from. At the time, policymakers were of the view that the East Asian giant would become more open economically and politically as a result of this integration.

Consumers, too, benefited from low inflation.

However, this trend came at a huge cost for communities in the US and elsewhere that were dependent on manufacturing. Swathes of workers lost their jobs to China.

This is the "China shock."

How Beijing could be creating China shock 2.0

Now, China is targeting three new strategic industries that the rest of the world is also eying.

This time, though, Western countries are not letting Beijing get its way so easily — especially since China is aiming to develop its own supply chain ecosystem in these areas.

"The advanced economies are facing the combined impact of China's moderating medium-term GDP growth on global demand as well as competition from China's new wave of industrialization," Rajiv Biswas, an international economist and the author of "Asian Megatrends," told Business Insider.

This development doesn't stem only from China's push into manufacturing the end products in the fields of EVs, lithium-ion batteries, and solar cells. The country is also developing global supply chains for critical raw materials, such as rare earths, that will supply these industries.

"Consequently, the industrial economies of the OECD nations are facing new economic challenges from China's strategic competition in these key growth industries," Biswas said.

Such competition is even keener now due to deflation in China— which has become the only major economy in the world dealing with negative consumer prices.

Meanwhile, China's slowing economic growth also means it's not buying as much from other countries, ratcheting up trade tensions.

Last year, China's imports of goods from the rest of the world fell by 5.5% from a year ago, official data shows.

What is the US and the rest of the world doing about China shock 2.0?

The world isn't going to be caught flat-footed by China's emerging dominance in hot new industries this time.

"It is likely that strategic competition between the US, EU, and China will continue in the long-term in areas of advanced manufacturing technologies," said Biswas.

Many companies are already diversifying supply chains away from China for a range of products.

The US is taking steps to boost chip manufacturing at home. The CHIPS Act provides $52 billion in subsidies for production, research, and workforce development. The US Inflation Reduction Act is also boosting investment in clean energy.

On April 2, the Department of Energy announced a $75 million investment to develop a research facility to strengthen the domestic supply chains of critical minerals.

Meanwhile, US Treasury Secretary Janet Yellen is in China for meetings with top Chinese officials. The Treasury said in a press release announcing her visit that she will be "pressing Chinese counterparts on unfair trade practices and underscoring the global economic consequences of Chinese industrial overcapacity."

At a Suniva solar cell plant in Georgia on March 27, Yellen said she was "concerned about global spillovers from the excess capacity that we are seeing in China" that have now hit new energy industries like solar, electric vehicles, and lithium-ion batteries.

The European Union, too, is taking steps to protect its domestic manufacturing in emerging key industries.

In October, the European Commission launched a probe into whether EV imports from China benefited from illegal subsidization that in turn, threatens to damage the EU's EV manufacturers. If this is found to be true, the EU could impose tariffs on these imports. The EU investigation is ongoing.

The EU has also established the European Chips Act to boost domestic chip production.

After all, it's once bitten, twice shy.

"People like me grew up with the view: If people send you cheap goods, you should send a thank-you note. That's what standard economics basically says," Yellen told the Journal in an interview published on Wednesday. "I would never ever again say, 'Send a thank-you note.'"

What is China's response to the West's moves?

China is framing the US response as a move to contain its growth.

"The US side has adopted a string of measures to suppress China's trade and technology development," Wang Wenbin, a spokesperson for the Chinese foreign ministry, said at a regular press conference on Wednesday.

"This is not 'de-risking,' but creating risks. These are typical non-market practices," Wang added.

He also said China's exports of EVs, lithium-ion batteries, and solar cells have risen due to the "international division of labor and market demand" thanks to the global energy transition to more sustainable energy sources.

China is also de-risking by increasingly trading with Southeast Asia, where there is a burgeoning middle class, said Biswas, the economist. Other large developing markets China is targeting include Africa and Latin America, he added.

Last year, China exported more goods to Southeast Asia than to the US for the first time ever, according to a Bloomberg analysis of Chinese customs data published in January — signaling a change in global trade flows amid the changing geopolitical landscape.

The US presidential election campaign season this year is likely to heat up some trade issues, Nomura economists wrote in a note on March 15.

"We reckon China's export price deflation and overcapacity in a number of strategically important sectors might cause trade tensions to escalate later this year, and possibly beyond," the Nomura economists added.