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Stable Swiss inflation questions SNB June rate cut

Inflation in Switzerland remained at its highest level of 2024, calling into question whether the Swiss National Bank (SNB) will cut interest rates later this month. The franc strengthened versus major currencies on Tuesday and the SMI closed with a slight gain, while most European equity markets suffered losses. Treasury yields dropped while US stock markets struggled to gain traction on Tuesday after the number of job openings hit its lowest level in more than three years. Asian equity trading was mixed on Wednesday.

Shane Strowmatt, LGT
Tempo di lettura
5 minuto
Swiss franc
© Shutterstock

The Swiss Consumer Price Index increased 1.4% in May when compared to a year earlier, the same pace as in April and in line with market expectations. The Swiss National Bank (SNB), which has a target inflation range of 0% to 2%, surprised markets in March with an interest rate cut citing the slowing pace of price increases. Inflation dropped to 1% in March, initially appearing to justify the interest rate hike, but a swift weakening of the franc in the first five months of 2024 increased the price of imported goods, helping to stabilse overall inflation. While many economists had previously expected the SNB to cut rates again at its next monetary policy meeting on 20 June, the stable inflation could prompt the central bank to pause its rate cutting cycle until the next meeting in September.

Elsewhere in Europe, German labour market data dampened market sentiment, with unemployment coming in higher than market expectations. The number of people without a job increased by 25,000 in May on a seasonally adjusted basis, while the unemployment rate remained stable at 5.9%. Germany’s DAX and the Euro Stoxx 50 both lost about 1% on Tuesday.

More signs were gathering that the US economy was slowing down with job openings falling to the lowest number since early 2021. The number of positions available in the US economy dropped to 8.06 million in April from 8.36 the previous month, according to the US Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS). That number has been trending lower from a peak of around 12 million in early 2022. As a result, the ratio of open positions per employee in the economy - which is watched by the Federal Reserve (Fed) as a gauge of labour market strength - hit its lowest level in almost three years.

Treasuries, which were already rallying the last days, continued to surge as traders pulled forward their expected timelines for when the Fed will begin cutting rates. Yields on two-year US government debt fell to around 4.78% and 10-year yields were around 4.35% following the job vacancies data.

In New York, stock indices managed to finish with moderate gains after starting the day in negative territory. The Dow Jones Industrial finished Tuesday’s session up 0.4% and the S&P 500 gained 0.2%. The Nasdaq-100 increased 0.3%.

Stocks stabilised in India on Wednesday, trading about 1% higher after losing nearly 6% a day earlier. The drop came as election results were slowly showing that Prime Minister Narendra Modi’s party was unlikely to win an outright majority in parliament.

Elsewhere in the Asia-Pacific region, Australia’s S&P/ASX 200 was up 0.4% after first-quarter gross domestic product grew 1.1% on the year, just slightly lower than expectations. In China, services activity was picking up with the Caixin S&P Services Purchasing Managers’ Index increasing to 54 in May from 52.5 April. Hong Kong’s Hang Seng Index was trading 0.3% higher, while the Shanghai Composite fell 0.5%. In Tokyo, the Nikkei 225 dropped about 1% after real wages slipped 0.7% in April, with monthly data now falling for more than two years in a row. In South Korea, the Kospi led regional gains, trading up 1.3%.

Corporate news in focus: Annual general meetings at Air France-KLM, Walmart.

Economic data in focus: German Composite PMI, euro area Composite PMI, euro area PPI, US ADP National Employment Report, Bank of Canada interest rate decision, US S&P Composite PMI, US ISM Services PMI.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.