SWITZERLAND: CPI Details Point Towards Upward Surprise From Less Relevant Cat's
The details of the Swiss February inflation print point towards the upside core surprise (0.9% Y/Y vs 0.7% cons) stemming from categories the SNB has put less focus on historically regarding remaining inflation stickiness. Specifically, the contribution from 'core goods' (which, in Switzerland, is goods excl. fresh/seasonal products & energy/fuels) rose by 0.125pp from January - more than outweighing the services contribution change of -0.068pp. As the combined contribution of household items and clothing also declined, this points towards processed foods and non-alcoholic beverages as the key outperformance drivers.
- This should underpin markets' base case of a 25bp cut at the March 20 SNB meeting - SARON futures moved into a hawkish direction following the release but are starting to come back a little.
- Looking at the details within the services category, on which the SNB has focussed in the past:
- 0.046pp higher contribution from recreation, which moved back up to around the 1%Y/Y handle (it stood there throughout Q4'24 before dropping in January).
- Hospitality, which has seen a 1.1% minimum wage increase on Feb 1 (2024 minimum wage increase was around 2.1% for comparison), took away 0.087pp in headline contribution vs Jan - that was driven by a base effect in the hotels category.
- Airfares adding 0.024pp in contribution countered that partially.
- Rental inflation saw its quarterly update as expected, and declined 0.2pp to 3.2% Y/Y.
- Elsewhere, a lower contribution from energy moving further into deflationary territory more than outweighed food (incl. non alcoholic beverages) inflation being higher than before.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US: Bullish Hassett Lifts CAD and MXN Further Off Lows
- Markets responding positively to comments from the director of the White House's Economic Council Hassett, who notes in an interview with CNBC that Mexico is "serious" about Trump's executive order, but Canada appears to have "misunderstood" the language. Hassett adds that it remains up to Trump, who will "decide what he will call off or what he's not" - possibly hinting at space within which tariffs can be eased.
- CAD and MXN move stronger on the headlines, working against the USD and favouring equity futures in the process.
- Hassett also speaks very positively on Mexico and Canada ahead: "Trump is going to decide all of this ... there are positive conversations that have happened over the weekend, and conversations with Canada and Mexico that will happen over the coming hours... everyone's been very impressed by the seriousness of the Mexicans, who appear to have read the executive order. The Canadian leaders either didn't read it or tried to misrepresent it to the people" (Transcribed by MNI)
SPAIN AUCTION PREVIEW: On offer this week
Tesoro Publico has announced it will be looking to sell a combined E5.5-6.5bln of the following Bono/Oblis at its auction this Thursday, February 6:
- the 2.40% May-28 Bono (ISIN: ES0000012O59)
- the 3.10% Jul-31 Obli (ISIN: ES0000012N43)
- the 4.00% Oct-54 Obli (ISIN: ES0000012M93)
Tesoro Publico has also announced it will be looking to sell a combined E0.25-0.75bln of the 1.15% Nov-36 Obli-Ei (ISIN: ES0000012O18) at that auction.
Additionally, Tesoro Publico has announced it will be looking to sell a combined E5.5-6.5bln of the following letras at its auction tomorrow, February 4:
- the 6-month Aug 8, 2025 letras
- the new 12-month Feb 6, 2026 letras
CHINA: Tariffs on China Look More Adequately Priced, CNH Looks to Close Gap
While much of the focus has naturally been on Mexico and Canada and the possibility of last-ditch talks to lessen the impact of tariffs, the 10% levy on Chinese imports looks much more appropriately priced - and USD/CNH is fading further off the highs as a result and looking to close the gap with the Friday close at 7.3223. Recall Chinese markets return from LNY on Wednesday.
- We wrote on Friday that CNH downside could be limited through this first phase of tariffs, as the reaction function of the Chinese authorities remains key. MNI wrote on January 17th that the PBOC will limit any sharp depreciation of the CNY in response to tariff uncertainties as sharp CNY depreciation will worsen capital outflows and impede monetary and fiscal policy coordination.
- The toolbox available to limit CNY declines is sizeable: USD liquidity and use of the counter-cyclical factor is likely the first line of defence, but tweaks to both the FX RRR (last used in 2023) and deposit requirements for FX forwards remain tools to be used should markets become disorderly.
- Any agreements made between China and the US will be taken in the context of the 'Phase One' agreement signed in Jan'20 which allowed for FX rate flexibility as a release valve for internal/external economic imbalances - and could limit criticism of fluctuation in FX rates over the medium-term.
- As such, CNH downside could be limited over the short-term - price action that would work against options market pricing that increasingly favours USD/CNH calls. As such, collecting premiums via selling USD/CNH topside would stand to benefit.
