The Swiss Market Index (SMI) has pulled back in the past two trading sessions as traders focus on this week’s interest rate decision by the Swiss National Bank (SNB). The SMI index retreated to CHF 11,676 on Friday, a few points below the year-to-date high of CHF 11,800.
SNB decision aheadSwiss stocks have done well this year, helped by the performance of global equities. Most of Europe’s stock indices like the DAX and FTSE MIB have all jumped to their highest levels on record.
The SMI index, which tracks the biggest companies in Switzerland, has jumped by more than 13% from its lowest level in November last year.
The index will be in the spotlight this week as several important central banks like the Fed and the SNB deliver their decisions.
These will be pivotal meetings because they will set the tone for what to expect later this year. In the US, the Fed is expected to deliver another hawkish pause since inflation remains stubbornly high.
The Swiss National Bank is also expected to leave rates intact in this week’s meeting. A survey of economists by Bloomberg found that most of them expect it to start cutting rates sooner than expected.
They believe that the SNB will start cutting rates in June followed by two more in September and December. In a note, a Bloomberg economist said:
“With the economy holding up, pressures on the exchange rate remaining contained and inflation likely to pick up a touch, our view is that they will prefer to wait and keep rates unchanged at 1.75% for now.”
The new SNB rate cut expectations will likely be supportive of Swiss Market Index companies. However, while most of these companies are Swiss, they are global companies that do most of their businesses internationally. This includes the biggest firms in the index like Nestle, Novartis, and Roche.
Most SMI index companies have done well this year. The best performers are the likes of Lonza Group, Richemont, Swiss Re, Holcim, and Givaudan. All these companies have jumped by more than 17%, with Lonza soaring by 34%.
On the other hand, the main laggards in the SMI index are companies like Kuehne Nagel, Roche Holdings, and Sika.
Swiss Market Index forecast
The SMI index bottomed at CHF 10,247 in November last year and has been in a strong uptrend since then. It peaked at CHF 11,796 this month and has pulled back slightly since to 11,676. It remains slightly above the crucial support level at CHF 11,610, its highest swing in May last year.
The Swiss Market Index bull run is being supported by the 50-day and 25-day moving averages. Therefore, I suspect that the index will continue its bull run as bulls target the crucial resistance point at CHF 12,000.
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