Swiss Inflation will fall under the 2% mark - today!

3 Tem 2023

CHF Perspective:

Negative:
- As announced in February, Swiss inflation will fall below 2% target of the SNB from the second half of the year on (i.e. today)
- The SNB raised interest rates again in June and thus probably ended its rate hike cycle (-> a further rate hike of 0.25% in September cannot be ruled out entirely, but it would not be necessary).
- The main driver of Swiss inflation are now rising rents, for which further interest rate hikes would be counterproductive due to the rise in the reference rate.
-> would only further fuel rents, therefore unnecessary
- Switzerland's manufacturing sector is increasingly weakening, as both the PMIs and the KOF indicator show.

Positive:
- SNB remains hawkish despite falling inflation (but whether this is actually sustainable remains to be seen)
- The SNB continues to support the franc by selling other currencies
-> due to the fact that the SNB will continue to put the brakes on a possible gradual weakening of the CHF, I expect the trade to move forward rather slowly (but that's fine with me, the positive swap sweetens the wait)


CAD Perspective:

Positive:
- Everything has happened more or less as forecasted in February:
-> the Canadian labour market is on fire (like Paris nowadays) and together with the "sticky" core inflation forced the BOC to raise interest rates again in June
- another rate hike this month is likely, ultimately the labour market report on Friday will decide -> if it at least meets expectations the chances are good
-> would give the CAD an additional boost
- As predicted in February, migration is booming in Canada.
-> keeps the housing market, retail sales and inflation on their toes
-> core inflation remains a problem for the BOC

Negative:
- Oil is not making any headway. Tighter supply (OPEC production cuts) is clashing with the gloomier outlook for the global economy, leading to a stalemate so far.


Due to the banking crisis in March, the first attempt of this trade had no chance (bad luck!), but since all the other factors came exactly as forecasted, I'm giving the trade a second chance, let's see!