Switzerland’s trade surplus decreased in July, reaching CHF 4.59 billion compared to CHF 5.79 billion previously. This change was due to a 1.2% increase in imports and a 3.8% decrease in exports.
The July trade data showed a notable narrowing of our surplus, driven by a 3.8% drop in exports. This points to cooling global demand, particularly for our high-value products like pharmaceuticals and watches. This development puts negative pressure on the Swiss franc.
Swiss National Bank’s Caution
We see this weak export figure as giving the Swiss National Bank (SNB) more reason to be cautious. With their next policy meeting scheduled for September 18th, this data makes another interest rate hike less likely. The SNB has consistently worried about the franc’s strength, and this report validates those concerns.
For the coming weeks, we believe positioning for a weaker franc is the logical response. Buying call options on currency pairs like USD/CHF or EUR/CHF with expirations after the September SNB meeting offers a way to profit from this view. This strategy provides upside potential with a clearly defined and limited risk.
This view is reinforced by the latest manufacturing PMI data from the Eurozone, which came in at a contractionary 48.5, signaling continued weakness in our largest export market. While Swiss inflation from earlier this month was still at 2.1%, the SNB will likely prioritize the growing risks to economic activity. Looking back, we saw a similar dynamic in late 2024 when a strong franc began to visibly drag on growth.
Impact on the Swiss Market Index
We should also consider the impact on the Swiss Market Index (SMI), which is heavily weighted towards large exporters. A potentially weaker franc could act as a tailwind for the earnings of companies like Nestlé and Roche. Therefore, options strategies that are bullish on the SMI, while simultaneously bearish on the franc, could be an effective way to play this divergence.
