CHF Appreciation Takes Its Toll, August Swiss Exports Tumble Most Since December 2008

Following up on the previous story of a gold referendum push driven by the SNB's last ditch choice to peg the CHF to the EUR and potentially pay for this by selling gold, we next learn that when it comes to its currency, the Swiss National Bank really has no options, following a long overdue collapse in exports in August when the CHF soared on global risk aversion and just before Hildebrand started loading up the "asset" side of his balance sheet with Euros. Unfortunately, just like last year when the SNB intervened and loaded up on dollars only to end its intervention following massive paper losses, this time will be no different and we expect that the Swiss people will see the trade off between keeping a viable currency and a sound export sector as one that will ultimately benefit the former. As to what happens to the latter, here is Goldman with a discussion of the huge collapse in Swiss August exports, which is a harbinger of things to come when the SNB's latest intervention attempt is overruled in several months, and reality reasserts itself.

From Goldman's Dirk Schumacher

Big decline in exports

BOTTOM LINE: Real exports contracted by 7%mom in August, their biggest decline since December 2008. Real imports rose slightly (+0.9%mom) and the trade surplus narrowed from CHF 2.8bn to CHF 0.8bn. To abstract from monthly volatility, we tend to focus on the three-month over three-month average rate of export growth. This fell into negative territory (-1.9%) in August for the first time in 2011.


1. The monthly Swiss trade data are volatile and prone to revision. Indeed, in this morning's release, the 3%mom contraction in real exports in July was revised up to show a 1.4%mom expansion. Nevertheless, on a three-month over three-month average basis (to smooth out monthly volatility), exports contracted by 1.9%mom in August - their second lowest 3m/3m growth rate for two years. In smoothed level terms, the decline in exports is notable (Chart 1).


2. What's surprising is that this export contraction - which we expect to deepen over the coming quarters as the lagged effects of CHF strength combine with weaker external demand from the Euro-zone and emerging markets globally - has happened relatively late. The level of real exports rose by 14% in the year to June 2011, a period over which the CHF appreciated sharply. That said, the appreciation of the currency stepped up considerably in the middle of this year. In the three months to its peak on August 10, the trade-weighted Swiss franc appreciated by 21% (Chart 2). We will continue to see the negative impact of CHF strength on Swiss export volumes over the coming quarters (Chart 3).


3. The survey data on firms' order books also suggest a deterioration in actual export performance is imminent (Chart 4).