Both the euro and Swiss franc were losers this week, likely driven by rising expectations of more stimulus coming from the ECB (as hinted by ECB members all week) and net negative economic updates, most notably, falling producer and consumer prices.
European Headlines and Economic data
ECB’s De Cos says governing council should increase monetary accommodation – expectations are that the eurozone will likely head back into recession this quarter.
Germany’s Merkel pushes stricter COVID measures, states want to wait and see – “Merkel had proposed additional measures including making it mandatory to wear masks in schools and shrink class sizes, and urging citizens, and children, to limit social contacts to one household or friend.”
ECB’s Lane Pledges Cheap Credit as Long as Pandemic Crisis Lasts – “Policy makers have signaled that they’re willing to increase the ECB’s 1.35 trillion-euro ($1.6 trillion) emergency bond-buying program and come up with more long-term loans for banks.”
ECB Wants Next Stimulus to Be Judged on Quality, Not Quantity – “The emphasis might be an attempt to contain expectations for an out-sized increase in bond purchases beyond the additional 500 billion euros ($594 billion) anticipated by some economists”
Euro zone inflation confirmed negative in October on weak energy – “Inflation in the 19 countries sharing the euro was plus 0.2% month-on-month in October for a 0.3% year-on-year fall”
Euro area current account recorded €25B surplus in September 2020, up from €21B in August – Current account surplus amounted to €222 billion (1.9% of euro area GDP) in 12 months to September 2020, down from €270 billion (2.3%) one year earlier
- Energy prices as a whole decreased by 2.9%.
- Prices of intermediate goods decreased by 0.4% compared to October 2019.
- Prices of non-durable consumer goods decreased by 0.5% compared to October 2019. Food prices decreased by 1.3%.
Flash estimate of the consumer confidence decreased in both the euro area (-2.1) & the EU (-2.2) in Nov. At −17.6 points (euro area) & −18.7 points (EU), both indicators
are well below their long-term averages of −11.2 (euro area) and −10.6 (EU).
The Swiss Franc
Swiss Headlines and Economic data
We saw a spike in volatility for the franc during the European trading session. Likely on a quick rise in positive risk sentiment, sparked by another positive COVID-19 vaccine headline (Moderna says preliminary trial data shows its coronavirus vaccine is more than 94% effective). The risk rally seems to have been limited and the drop was faded, likely as traders remembered that cases were rapidly rising and mandatory lockdowns were quickly coming from governments across the U.S. (much of California ordered back into lockdown) and Europe (Germany’s Merkel pushes stricter COVID measures).
Traders seemed to be leaning negative on the session with virus restrictions rising throughout the U.S. and Europe, and concerns of a no-deal Brexit likely outweighed recent positive vaccine news. We saw the franc recover some of its Monday losses on the move.
SNB Faces Cliffhanger Vote on $21 Billion in Stock Investments – “With 20% of its 872 billion francs of foreign-exchange reserves in equities, the central bank fears the proposal would “significantly restrict” its investment options.”