Switzerland - Common Economic Statistics

Repo Overnight Index

Tracks the interest rate for the overnight repurchase agreement (repos) market where financial institutions enter into agreements to provide overnight loans to other institutions that require funds to close the day’s transactions. This is an important interest rate to track as changes to the overnight rate can affect commercial rates.

Overnight repos are transactions financial institutions facing temporary cash shortages enter into with institutions that have a surplus of cash and are provided on an overnight basis. Because cash requirements can vary greatly from day-to-day and outstanding transactions must be settled at the end of each day, it is not uncommon for banks to find themselves short on cash.

These institutions will have assets held in various notes and other securities but rather than liquidate these holdings, they can be offered as collateral for overnight loans. In return for the overnight loan, the borrowing institution agrees to “repurchase” the securities back the following day at an agreed-upon rate that includes a premium for the lending firm.

LIBOR

Shows the projected 3-Month LIBOR (London Inter-Bank Offered Rate) rate for the Swiss franc.

In 1999, the Swiss National Bank (SNB) adopted a monetary policy consisting of three primary targets – these are:

• a definition of price stability
• the implementation of an inflation forecast that would provide feedback for monetary policy decisions
• the establishment of a target range for the 3-Month LIBOR rate

The LIBOR rate is the interest rate at which funds are transacted in the London inter-bank market – these rates are set each day by the British Banker’s Association which also supplies forward rates for 3-month, 6-month, and one-year maturities. By setting a target range for the LIBOR 3-month Swiss franc future rate, the SNB can implement a monetary policy geared to keeping the 3-month rate within the target range.

For example, if the 3-Month LIBOR rate is higher than the target range established by the SNB, it is likely that the Bank will lower interest rates in an attempt to slightly devalue the franc relative to other currencies. This devaluation would in turn be reflected in an updated 3-month LIBOR rate.

Conversely, if the 3-Month LIBOR is below the target, look for the SNB to increase interest rates to generate demand for the franc thus leading to an increase in the franc’s value. In either case, this chart can provide market watchers with advance notice of possible interest rate changes.

Ten Year Bond

Tracks the historical yield for the specified fixed income security – for example, a 10-year bond.

The value of fixed income securities in the bond secondary market fluctuate in response to market conditions. As the name implies, the income for these instruments is “fixed” at a specified return rate (i.e. yield) together with the maturity date for the bond. The yield is based on current interest rates, the time to maturity, and the creditworthiness of the issuer. For instance, non-government bonds typically offer a higher return as these securities carry a greater risk than bonds backed by the government and investors expect some form of premium in return for accepting additional risk.

In addition, the longer the term of the bond, the greater the risk of losing value through what is known as [[Liquidity Spread|liquidity spread. This term refers to the difference between the bond yield and short-term interest rates. As interest rates rise, the locked-in yield of a bond becomes less valuable as it does not adjust higher to compensate for the rising interest rates, thereby reducing the true value of the return. If short-term interest rates rise above the yield, the investor actually faces a negative liquidity spread.

LIBOR Yield Curve

Shows the projected LIBOR yield curve for the Swiss franc for various maturity terms and is used extensively as the reference rate for forward rate agreements.

London is unquestionably the preeminent interest rate market in the world and this has led to the LIBOR (London Inter-Bank Offered Rate) becoming the standard benchmark for setting other interest rates. Financial products such as forward rate agreements (FRAs) and floating rate loans including variable rate mortgages are often priced relative to the LIBOR.

A forward rate agreement (FRA) is a derivatives-based financial instrument in which one party (the buyer or borrower) agrees to pay a fixed interest rate to another party (the seller or the lender). The fixed rate is calculated for a specified notional amount (i.e. the principal) that is owned and held by the seller of the FRA. In return for payment of the fixed rate, the buyer receives the proceeds the notional amount earns based on the floating reference rate – in this case, the LIBOR rate.

LIBOR is also used as a reference rate for many of the world’s major currencies including the U.S., Canadian, New Zealand, and Australian dollars, the Pound Sterling, the Euro, the Swiss Franc, the Yen, the Swedish Krona, and the Danish Krone. Each business day at 11:00 AM London time, the British Banker’s Association (BBA) releases the current overnight LIBOR rate based on a survey of participants in the previous overnight market. The BBA also produces projected LIBOR rates with maturities for 3-Month, 6-Month, and 1-Year deposits.

Yield Curve

The yield curve plots the return on fixed income instruments (i.e. bonds). The shape of the curve illustrates the relationship between expected yields and time to maturity.

Bond yields are based on the duration of the bond (i.e. the time to maturity) and the creditworthiness of the issuer. In order to attract investors, non-government bond issuers must offer a higher return as these securities carry greater risks than bonds backed by the government and investors expect some form of premium in return for accepting the additional risk.

Long-term bonds are also at risk of losing value through a diminishing of the liquidity spread. This term refers to the difference between the bond yield and short-term interest rates. As interest rates rise, the locked-in yield of a bond becomes less valuable as it does not adjust higher to compensate for the rising interest rates, thereby reducing the true value of the return. If short-term interest rates rise above the yield, the investor actually has a negative liquidity spread.

Normal Yield Curve

A so-called “normal” yield curve is one that curves upwards in a concave manner. This indicates an increase in the yield (the x axis) as time to maturity (the y axis) increases. This follows the tenant of the Arbitrage Pricing Theory that states that the longer the term to maturity, the higher the yield. This approach rewards investors willing to lock their money into long-term bonds despite the increased risks noted earlier.

Flat Curve

A flat yield curve results when the yields are basically the same for all maturities. This indicates that investors are willing to accept yields on long-term instruments that do not include a premium above current short term yields. Investors would only accept this if they feel that the economy has little capacity for growth combined with the likelihood that interest rates will not rise.

Inverted Yield Curve

An inverted yield curve that slopes downwards over time indicates a negative outlook for the market in the long term and could suggest the onset of a prolonged economic downturn or possible recession. An inverted yield curve shows even greater long term pessimism than a flat curve – so much so that long-term bond yields actually fall below short-term yields (negative liquidity spread). The implication is that investors are willing to lock in investments at the current rate in the belief that yields will continue to fall in the face of a worsening economy.

Humped Curve

A “humped” curve occurs when both short and long tem yields are equal but medium term yields are higher. This could indicate an expectation that the economy may be entering a period of growth but this growth is not expected to be sustained for the long term.

Gross Domestic Product

Gross Domestic Product (GDP) is the total value of all goods and services produced within the borders of a country for a given period of time. Everything produced in the country is counted without regard to the nationality of ownership of the firms producing the goods – in short, if it is produced within the country’s borders, it is counted as part of the GDP.

An increase in GDP is seen as a positive indicator suggesting that the economy is growing. This often results in increased demand for the dollar and could see an increase in value in the FX markets. As the value of a country’s production increases, a corresponding increase in the workforce is likely which suggests greater employment and higher incomes.

There are shortcomings in this assumption however, as volunteer work is not included in the basic GDP calculation; nor is work performed in the so-called underground economy. In this case, work done “under the table” or in exchange for other goods or services is not part of the GDP results.

Real GDP Versus Nominal GDP

When the value of goods and services from one time period is compared to another, changes in the inflation rate can account for some of the difference between multiple GDP results. In order to make it clear whether or not inflation has been factored in, economists use the term Real GDP to indicate GDP results that have been adjusted for inflation. This is the approach that best enables economists to determine if the economy has increased or contracted when compared to previous results. GDP figures that have not been adjusted are usually referred to as Nominal or Current Dollar GDP amounts.

Relative Quarterly Gross Domestic Product

Measures the percentage change in the Gross Domestic Product (total value of all goods and services produced) from the previous quarter.

Gross Domestic Product (GDP) is the total value of all goods and services produced within the borders of a country for a given period of time. Everything produced in the country is counted without regard to the nationality of ownership of the firms producing the goods – in short, if it is produced within the country’s borders, it is counted as part of the GDP. This chart shows the percent change in GDP from the preceding quarter.

An increase in GDP is seen as a positive indicator suggesting that the economy is growing. This often results in increased demand for the dollar and could see an increase in value in the FX markets. As the value of a country’s production increases, a corresponding increase in the workforce is likely which suggests greater employment and higher incomes.

There are shortcomings in this assumption however, as volunteer work is not included in the basic GDP calculation; nor is work performed in the so-called underground economy. In this case, work done “under the table” or in exchange for other goods or services is not part of the GDP results.

Real GDP Versus Nominal GDP

When the value of goods and services from one time period is compared to another, changes in the inflation rate can account for some of the difference between multiple GDP results. In order to make it clear whether or not inflation has been factored in, economists use the term Real GDP to indicate GDP results that have been adjusted for inflation. This is the approach that best enables economists to determine if the economy has increased or contracted when compared to previous results.

GDP figures that have not been adjusted are usually referred to as Nominal or Current Dollar GDP amounts.

Unemployment Rate

Measures the change in employment levels between consecutive reporting periods. A decrease in employment is seen as a negative indicator as job losses are typically triggered by a lower demand for goods and services.

The obvious impact of falling employment is a decline in consumer spending as government unemployment benefits do not cover the full wages workers earned earlier; a reduction in spending is an immediate response by affected households. Add to this the fact that workers currently employed but feeling vulnerable with respect to their continued employment, also typically reduce spending in a bid to boost savings to prepare for possible job loss. This behavior further reduces consumer spending and can actually fuel additional layoffs.

Employed Persons

Shows the total number of individuals currently employed. This includes self-employment.

This graph tracks monthly changes in the number of employed persons. Any employment metric is an important indicator as to the health of an economy as employment and can be directly tied to consumer spending. If employment remains strong and workers feel confident that prospects for continued employment remain likely, consumer spending can be expected to remain strong.

However, if employment is declining, then consumer spending can be expected to also decline. It is also likely that employees fearing for their continued employment will reduce their spending in order to add to their savings in anticipation of short-term unemployment, and this behavior further reduces consumer spending and can actually fuel additional layoffs.

Industrial Production

Measures the production of the manufacturing, mining, and energy supply industries. An increase from the previous period is seen as a positive indicator confirming growth in the economy. This usually supports the value of the native currency in the currency markets.

The industries included in this category are integral to the region’s overall economy. A large segment of the population is employed in these sectors so continued growth bodes well for continuing employment. As an economic indicator, Industrial Production is particularly effective as these industries respond in a very predictable manner in response to changes in the economy. When the economy is growing for instance, consumer demand for manufactured goods typically rises as do energy requirements to power additional factories and facilities. During a downturn, consumer demand for durable goods retreats and this is reflected almost immediately in a drop in manufacturing and energy needs.

Relative Annual Retail Sales

Measures percentage change in retail sales from the last reporting period. Retail sales provides specific insight into consumer spending and can be used to gauge consumer confidence.

Consumer spending is one of the most relevant indicators pointing to the confidence consumers have in the economy. When people are relatively assured that their employment is secure and economic conditions remain favorable, retail spending tends to increase – when consumer confidence is low, retail spending is one of the first areas affected and this is reflected by decrease in the retail sales results.

With respect to inflation, successive increases in the retail sales figures suggests that inflationary pressures are creeping into the economy, and this can be confirmed by evaluating other indicators as well – especially the Consumer Price Index. When faced with accelerated consumer spending, Central Banks typically raise interest rates in a bid to make it more costly to borrow money and this often leads to a decline in consumer spending.

Annual Core Retail Sales

Measures retail sales totals but excludes automobile and gasoline sales. Retail sales provides specific insight into consumer spending and can be used to gauge consumer confidence.

Consumer spending is one of the most relevant indicators pointing to the confidence consumers have in the economy. When people are relatively assured that their employment is secure and economic conditions remain favorable, retail spending tends to increase – when consumer confidence is low, retail spending is one of the first areas affected and this is reflected by decrease in the Retail Trade Index.

With respect to inflation, successive increases in the Retail Trade Index can suggest the inflationary pressures are creeping into the economy, and this can be confirmed by evaluating other indicators as well – especially the Consumer Price Index. When faced with accelerated consumer spending, Central Banks typically raise interest rates in a bid to make it more costly to borrow money and this often leads to a decline in consumer spending.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is considered one of the most effective indicators on the current state of inflation in an economy. When high inflation becomes a concern, investors will abandon the currency in search of other investment options thus lowering the demand for the dollar on the forex markets.

Inflation is necessary if the economy is to experience growth, but inflation exceeding 2% is generally seen as detrimental due to the erosion of the buying power of the dollar. CPI is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112, the indication is that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

Annual Consumer Price Index

The Consumer Price Index (CPI) is considered one of the most effective indicators on the current state of inflation in an economy. When high inflation becomes a concern, investors will abandon the currency in search of other investment options thus lowering the demand for the dollar on the forex markets.

Inflation is necessary if the economy is to experience growth, but inflation exceeding 2% is generally seen as detrimental due to the erosion of the buying power of the dollar. CPI is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112, the indication is that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

Annual Producer Price Index

Measures the change in prices for goods sold by the manufacturer using an index of 100 as the base. An increase in the PPI index suggests an expanding economy with reasonable assurances of continued employment for those working in the manufacturing sector.

The PPI has a high market relevance and is closely watched as an indicator of current inflation levels. Like other inflation-based indicators, increasing PPI values could signal an interest rate hike intended to combat inflation. A possible interest rate hike may increase demand for the currency as an investment option as investors can expect increased returns as interest rates rise.

Relative Annual Producer Price Index

Measures the change in prices for goods sold by the manufacturer using an index of 100 as the base. An increase in the PPI index suggests an expanding economy with reasonable assurances of continued employment for those working in the manufacturing sector.

The PPI has a high market relevance and is closely watched as an indicator of current inflation levels. Like other inflation-based indicators, increasing PPI values could signal an interest rate hike intended to combat inflation. A possible interest rate hike may increase demand for the currency as an investment option as investors can expect increased returns as interest rates rise.

Purchasing Managers Index

Measures changes in the manufacturing sector based on information provided by corporate purchasing managers responsible for acquiring raw materials for the country’s manufacturers.

The Purchasing Managers Index provides early insight into changes in the manufacturing sector as purchasing managers must naturally react to changes in business growth and demands. A survey is completed each month by members of the Swiss Association of Purchasing and Materials Management that outlines procurement expectations for the upcoming month. The index is expressed relative to the base index of 50 – a value exceeding 50 indicates the that the purchasing managers expects a growth in business for the next month, while a number below 50 suggests that growth will decline.

Trade Balance

Compares the total value of imports and the total value of exports for the reporting period. A negative value indicates that more goods were imported than were exported (trade deficit) – conversely, a positive trade balance means that exports exceeded imports (trade surplus). This report is used by currency investors to determine demand for the dollar.

In the case of a trade surplus or a decreasing trade deficit from the previous month, it naturally follows that countries importing goods must convert their currency to the domestic currency of the country supplying the goods. This results in an increased demand for the domestic currency thereby increasing its value.

In the case of a trade deficit or a trend towards a decreasing trade surplus, the importing country must convert more of their currency to the currency of the country from which they are buying goods. This leads to an increased supply of the domestic currency on the FX markets which could cause the domestic currency to lose value against other currencies.

Current Account

Shows the total inflow of new capital into a country. It is calculated as the total Trade Balance (exports minus imports), plus the net of income payments (interest and dividends), plus all unilateral transfers (foreign aid, taxes, and one-way gifts).

If the resulting number is positive, it shows a Current Account surplus; a negative value is a Current Account deficit. Note that a deficit means that more money left the country than entered the country in the form of exports and other transfers.