Despite a 2018 that included trade sanction escalations, a sharp drop in emerging currencies, fears of a global economic slowdown and a hawkish Fed, Swiss exports reached CHF 233.1 billion (+5.70%), a new record and the highest percentage gain since 2010. Switzerland not only maintained exports thanks to machines, electronic and watch products, it also imported more, reaching CHF 200 billion for the first time, coming to a trade surplus of CHF 31.3 billion. Swiss exports boomed in North America (+11.60%), Europe (+4.20%) and Asia (+4.40%). However, there was a sharp drop in UK demand of 23% to its lowest in 30 years, amid continued Brexit uncertainties. The Swiss watch industry appears in shape, with only two monthly drops in 2018 and yearly exports of CHF 21.2 billion, 6.30% higher than last year, although CHF 1.1 billion less than 2014’s record high.
Still, the State Secretariat for Economic Affairs (SECO) recently revised its Swiss GDP growth forecast in 2019 from 2% to 1.50%. We expect Switzerland to maintain solid export numbers despite economic conditions.
Euro upside
Markets seems less concerned with EUR/GBP and GBP/USD as 1-month volatility remains low. The European Central Bank is cautious, expected to launch new liquidity facility. While it is not directly focused on Brexit risk, it does help backstop overall European risk. We should see lower Eurobonds, especially in Italy, and the EUR/USD is poised for bullish extension. ECB’s admission of softer economic growth failed to damage the single currency. With negatives already priced into the Euro, expected improvement in economies and ECB support, a EUR/USD upside feels likely.
Brexit’s next test
In the UK, the House of Commons votes today on a second version of the Brexit deal. By most accounts it will also be rejected. Brexit fatigue is setting in. The high probability trade is of a compromise, resulting in a softer Brexit. No Brexit agreement would raise the probability of a second referendum and of the UK staying in the European Union. Opinion polls of remain/leave have not materially shifted since the Brexit referendum: we are uncertain of this outcome. This level of granularity in the middle of the UK’s greatest political knife fight feels disingenuous.
