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SNB hints rate hikes may not be over

Swiss National Bank Chairman Thomas Jordan said on Friday the central bank has more work to do in order to get inflation in Switzerland under control. Some market participants interpreted his words to mean the SNB is likely to hike interest rates at its June 22 rate decision. The Swiss Market Index finished Friday’s session up 0.85% after the comments.

Shane Strowmatt, LGT
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Swiss francs
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Despite Jordan’s concerns about reining in price increases, Switzerland has much lower inflation than its neighbouring eurozone countries. Data released Friday showed Switzerland’s inflation rate dropped to 2.6% in April when compared to the same month a year earlier. That is the lowest inflation rate in a year, and far below the 7% inflation rate in the euro area. When compared to the previous month, prices in Switzerland remained stable. While price growth may be slowing, core inflation - which ignores volatile energy and food prices - remained at 2.2%, higher than the bank’s 2% target. Additionally, unemployment data for April was released Friday, showing the unemployment rate remained unchanged at 2% in Switzerland, far below the 6.5% unemployment rate in the eurozone.

In the US, labour market data released Friday signalled the US Federal Reserve (Fed) may also have more room to hike rates. Nonfarm payrolls increased by 253,000 in April and the unemployment rate was a very low 3.4%. Earlier in the week, the Fed raised rates for a tenth consecutive time, but signal it may be coming close to pausing its hiking cycle.

Equity markets in New York finished the week strong after falling the previous four session. The Dow Jones Industrial jumped 1.65% Friday to end the week at 33,674.38 points and the S&P 500 gained 1.85% to close at 4,136.25 points. The tech-heavy Nasdaq indices put on about 2%. The US regional banks, whose stocks had recently been battered amid instability in the US financial sector, came roaring back at the end of the week. PacWest’s shares rebounded more than 80% Friday, while Western Alliance share climbed nearly 50%. Shares in both US regional lenders were still down over the whole week, however. The benchmark KBW Bank Index finished Friday up 4.6%.

In Asia, equity markets continued with Friday’s positive sentiment. Hong Kong’s Hang Seng Index increased 0.9%. In mainland China, the Shanghai Composite was up 1.8% and the Shenzhen Component gained 0.3%. Australia’s S&P/ASX 200 rose 0.7%. In Japan, the Nikkei fell 0.6%.

Corporate news in focus: Q1 figures from PayPal.

Economic data in focus: German industrial production (08:00 CET).

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

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