Starting day for US jobs data.
During Janet Yellen’s speech at the Economic Club of New York she confirmed what we have been saying for almost a year – the Fed is clearly not in a rush to raise rates. The Fed chair expressed her cautiousness about the strengthening of the US economy. Yellen also added that any rate hike will be gradual. She also admitted that growth is likely to be weaker than expected. Obviously, weaker global demand is not synonymous with a recovery. Concerning the US, we feel that expectations are just too high, especially as inflation remains too low and reaching the central bank’s target of 2% seems, at least at present, a difficult goal to reach.
US labour market data is due to be released later today. The ADP employment change is expected to print a bit lower than expected, however, at this point recent job data is already quite good and has not provided the expected inflation increase. We do not think that today’s release will have any major impact on the dollar. However, financial markets will be expecting way more from Fed members’ speeches than any data release as it seems that the interpretation of data is much more important than the data itself.
Switzerland still recovering.
The March KoF Economic Barometer is basically unchanged from February. The data came in at 102.5 from 102.6 contrary to the expected 102.0. Above its long term average, the indicators signal continued positive development for the Swiss economy. The strong impulse came from private consumption, while construction and financial sectors saw only marginal changes. As expected, the strong CHF continues to take its toll, as manufacturing (weakness in textile industry) and export sectors were negative. Moreover, negative signals from the employment side suggest that further layoffs should be expected. Overall, the Swiss economic recovery continues unabated.
The ECB easing program was unable to significantly drive sustained Euro weakness and therefore kept CHF from becoming paralysingly strong, much to the relief of the SNB. Fed Chair Yellen’s dovishly uncharacteristic acknowledgement of the limitation of conventional monetary policy tools has triggered USD selling (US 10-year yields sharply lower following Yellen’s comments), but reactive selling has tapered off.
In the mid to long term we continue to expect the Swiss franc to weaken against the greenback as global risk appetite remains solid. However, the effect on EURCHF should be limited (marginal bullishness) as expectations for next week’s ECB bond purchase to further constrict European yields will tighten EURCHF yield spreads and balance out fundamentals. EURCHF is consolidating in the near term but the upside looks interesting, resistance is located at 1.0950 declining trendline and horizontal price high.