Switzerland’s trade balance for May showed a surplus of CHF 3.83 billion, down from CHF 6.36 billion. The data from SECO reveals that exports dropped by 8.2% compared to the previous month.

Imports into Switzerland rose by 2.1% during the same period. Moreover, Swiss watch exports saw a 9.5% decline year-on-year in nominal terms.

Trade Surplus Contraction

That recent contraction in Switzerland’s trade surplus—slipping to CHF 3.83 billion from the prior month’s CHF 6.36 billion—came largely on the back of an 8.2% fall in exports. This is according to the May figures from SECO. At the same time, imports ticked up modestly by 2.1%, resulting in a narrowing of the surplus gap. What’s particularly worth noting here is that the surplus didn’t diminish because of a single factor, but rather because of weaker foreign demand combined with a mild, domestic-driven import uptick.

Looking more closely, the watch industry continues to feel pressure. A 9.5% annual fall in watch exports signals decreased appetite from traditional key buyers, possibly reflecting a broader softening in discretionary spending abroad. This isn’t happening in isolation; it’s part of a wider shift in global demand patterns, especially from regions once considered reliable contributors to Swiss export strength.

Given the above, one finds it necessary to consider how pricing behaviour might respond, particularly in hedging interest rate or FX exposure. Price action often widens around data points like these, which can drive short bouts of volatility—something not to be overlooked. While the Swiss franc hasn’t reacted violently, it may well become responsive if these trade patterns begin to align more consistently with weaker second-quarter GDP expectations.

Because of where import strength lies—more on the consumer or energy side rather than industrials—it’s hard to pin this on investment or capacity expansion. That doesn’t offer reassurance for growth-sensitive instruments. Whenever exporters take a hit but imports rise, the friction affects balance sheet planning, especially in forward-dated contracts tied to macro assumptions.

Strategic Considerations

Given that exports fell quite sharply compared to a gentle import climb, we find ourselves reassessing current exposure on both sides of the franc. If this turns into a longer trend, it puts pressure on domestic production margins and foreign pricing power, particularly for firms that hedge commodity or energy costs through options or swaps.

Therefore, in the very short term, we will pay closer attention to month-on-month flows in the services sector as well, since that hasn’t shown up yet in the current report. For now, adjusting strike levels slightly above standard deviation thresholds on the export-sensitive crosses may provide a buffer if volatility comes in lagged but acute form. These kinds of moves can affect short-dated implied vols too, so the window for aggression may stay narrow.

It’s also worth reflecting on historical correlations that don’t always hold up when trade balance data diverges from GDP or CPI paths. What we’ve seen here warrants tracking not only volume changes but also how certain export categories—other than watches—are faring under shifting real yields. Because when nominal declines appear, they may not all stem from fewer units, which is relevant in structuring optionality around credit exposure.

We, therefore, find it helpful to stay nimble on front-end delta hedging while keeping an eye on sectoral flows, especially if next month’s figures fail to stabilise. There’s more to watch than just the headline surplus figure.

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