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LGT Navigator: Swiss National Bank monetary policy in focus

March 24, 2022

Following the interest rate turnaround by the Federal Reserve and the third interest rate hike by the British central bank, two further decisions on monetary policy direction are due today in Switzerland and Norway, when the Swiss National Bank and the Norges Bank will announce their answers to rising inflation and weakening growth. In addition to central bank policy, however, the focus remains on the war in Ukraine and its consequences, particularly for Europe's energy policy. In this context, concerns are now also growing about a cooling of the global economy accompanied by rising prices. 

Swiss National Bank monetary policy in focus

On the New York Stock Exchange, the Dow Jones Industrial closed -1.29% lower at 34'358.50 points and the S&P 500 fell -1.23% to 4'456.24 points. Also, in Asia this morning, the fear of further escalation between the West and Russia clouds stock market sentiment. Most stock indices recorded slight losses again after the gains of the previous day. US government bonds recovered somewhat from their recent losses and the yield on ten-year Treasuries fell to 2.30%.

Putin's announcement that Russian natural gas must be paid for in rubles with immediate effect also caused excitement, whereupon oil prices rose again. Meanwhile, US President Joe Biden has arrived in Brussels for talks with the EU, G7 and NATO. In addition to new economic sanctions against Russia, the issue of a possible complete embargo on Russian oil is to be discussed. Given the heavy dependence in some EU countries, this remains controversial. However, pressure is mounting, especially on Germany.

Monetary policy also remains in focus. The Swiss National Bank (SNB) is still unlikely to have any real room for maneuver on monetary policy at 09:30 (CET) today, given the crisis nature of the Swiss franc and the still "tolerable" inflation.

Is a G20 summit with Putin still possible?

A G20 summit is scheduled to take place on the Indonesian island of Bali at the end of October this year. With the war of aggression in Ukraine, however, Western nations are now asking whether Russia's President Vladimir Putin should, can or may be part of the meeting. Jake Sullivan, National Security Advisor to US President Joe Biden, said that Washington will consult with its partners and make a joint decision. China, on the other hand, has already emphasized its opposition to Russia's exclusion from the group of 20 largest industrialized and emerging countries. Putin himself, in any case, intends (so far) to attend the G20 meeting, the Russian ambassador to Indonesia confirmed.

Ifo expects lower growth with higher inflation

Against the backdrop of the war in Ukraine and the global repercussions, particularly in the energy markets, the Munich-based economic research institute Ifo now expects weaker growth in the German economy in its spring forecasts published yesterday. Accordingly, gross domestic product is expected to increase by +3.1% in the base scenario or by only +2.2% in the alternative scenario in the current year. Previously, the Ifo had assumed average GDP growth of +3.7% this year. In 2023, the growth rate should then be +3.3% (base scenario) or +3.9% (alternative scenario). Inflation is expected to move in a range of +5.1-6.1% this year - the highest level since 1982, according to Ifo's assessment. The Ukraine conflict and sanctions, as well as significantly higher commodity prices and ongoing supply bottlenecks, are dampening the German economy, Ifo commented.

Growth forecast for Switzerland confirmed, but with considerable risks

The Swiss Institute for Business Cycle Research (KOF) at ETH Zurich also sees the Ukraine crisis as a significant damper on growth for the Swiss economy. Although the previous growth forecast of +3% for the current year has been confirmed unchanged, this is only in the best-case scenario. In a negative scenario, i.e. the geopolitical crisis spreads and there is a full embargo on all Russian energy and raw materials exports, including to the EU, as well as a significant appreciation of the Swiss franc, growth in the Swiss economy this year could also amount to just +1.1%. For 2023, KOF expects a slightly lower growth rate of +2.0% in the base scenario (previously +2.1%). The negative scenario would see GDP growth of just +0.5%.

UK inflation cracks 6% mark

British consumer prices rose more strongly than feared in February. Over the year, the inflation rate rose from +5.5% at the beginning of the year to +6.2%. This was the highest inflation rate since the start of the data series in 1997. According to the statistics office in London, prices were driven primarily by electricity, gas, and services. The Bank of England has already responded to the sharp increase in inflationary pressure with three interest rate hikes.

Because of the sharp rise in the cost of living, the British government announced a temporary reduction in fuel tax. According to UK Finance Minister Rishi Sunak, gasoline tax will be reduced by five pence per liter for a limited period until March 2023, for which the government has budgeted around GBP 5 billion. In addition, homeowners who install solar panels or heat pumps will receive financial relief over the next five years.

  

Economic Indicators March 24

MEZ Country Indicator Last period
08:45 FR Economic Indicator (March) +112.0
09:15 FR PMI Composite (March) 55.5
09:30 SZ SNB Monetary Policy Decision -0.75%
09:30 GE PMI Composite (March) 55.6
10:00 NOR Norges Bank Monetary Policy Decision +0.5%
10:00 EZ PMI Composite (March) 55.5
10:30 UK PMI Composite (March) -59.9
10:30 SZ SNB Press Conference
11:00 EU Meeting State and Government leaders
13:30 US Initial Jobless Claims (weekly) 214,000
13:30 US Durable Goods Orders (February, m/m) +1.6%
14:45 US PMI Composite (March) 55.9

 

Earnings Calender March 24

Country Company Period
SZ Zur Rose Annual
SZ Meyer Burger Technology Annual
GE Daimler Truck Annual
GE Heidelberg Cement Annual
IT Saipem Annual
UK Next Annual

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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