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Swiss inflation slows, supporting SNB rate cut

Inflation in Switzerland continued to slow in March in what appeared to be a justification of last month’s surprise interest rate cut by the Swiss National Bank (SNB). The Swiss franc fell further versus major currencies. Stock markets plunged at the end of the week, following comments from Minneapolis Federal Reserve (Fed) Bank President Neel Kashkari, who said the Fed may not cut rates at all this year. 

Shane Strowmatt, LGT
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5 minutes
Swiss franc
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Swiss consumer price increases continued to slow in March to 1% when compared with the same month a year earlier, down from 1.2% in February. Inflation has now been below the SNB’s 2% inflation target for more ten months in a row. The newest deceleration in consumer price increases vindicated the SNB, which surprised markets by cutting its key interest rate by 25 basis points to 1.5% last month. The Swiss franc suffered losses versus all major currencies on Thursday and has lost about 1% versus the euro since the start of the week as traders worried the SNB could cut rates more rapidly than previously expected. Switzerland’s SMI stock index was the best performing major European equities index on Thursday, closing 0.6% higher.

Elsewhere on the continent, prices were decreasing rapidly with industrial producer prices falling 1% in the euro area in February when compared with the previous month, or down 8.3% when compared with the same month a year earlier. Producer prices are closely watched as they are often indicative of future trends in consumer prices. The European Central Bank (ECB) has increased interest rates in an effort to get inflation back down to its 2% target with consumer prices in March coming in around 2.4%. Markets expect the ECB to cut rates this summer. A positive sign for the euro-area economy came from Thursday’s Composite Purchasing Manager’s Index (PMI), which was revised upward to 50.3 from a preliminary estimate of 49.9. A level above 50 signals expansion, suggesting euro-area business activity was in the process of returning to growth. The Euro Stoxx 50 finished Thursday’s session essentially flat.

New applications for unemployment benefits in the US increased to the highest number since January, according to US Labor Department data released Thursday. A total 221,000 new claims were filed last week, 9,000 higher than the previous week. On Friday, investors will gain more insight into the labour market when the government’s monthly employment report is released. But weakening labour market data wasn’t enough to convince traders that the Fed will cut interest rates any time soon. Comments by Minneapolis Fed President Neel Kashkari later in the day pressured equity markets. Kashkari questioned whether the Fed will cut rates at all in 2024 if inflation continues to move sideways, particularly given the strong state of the economy. The Dow Jones Industrial dropped 1.4%, the S&P 500 lost 1.2% and the Nasdaq-100 fell 1.6% after the comments.

The poor sentiment from the US stock markets spilled over to the Asia-Pacific region at the end of the week. In Tokyo, the Nikkei 225 fell 2.3% after household spending data for February came in much lower than market expectations at 0.5%. In South Korea, the Kospi dropped 1%. In Australia, the S&P/ASX 200 lost 0.6% after Australia’s trade balance dropped to a five-month low in February due to falling exports of important iron ore products. Hong Kong's Hang Seng Index lost 0.2%, while mainland Chinese markets were still closed for a public holiday. In central banking news, the Reserve Bank of India left rates unchanged on Friday.

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: euro area retail sales, Canadian unemployment rate, US nonfarm payrolls.


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