The Swiss National Bank caught some investors off-guard again on Thursday by delivering its second interest-rate cut of the year, driving down the value of the currency. The Swiss National Bank lowered its key policy rate by 25 basis points for the second consecutive meeting on Thursday, citing easing underlying inflationary pressures. The policy board headed by Thomas Jordan decided to cut the policy rate to 1.25 percent from 1.50 percent. The new rate will take effect on June 21. The SNB downgraded inflation projections for the forecast period due to slightly lower second-round effects. The inflation outlook for this year was trimmed to 1.3 percent from 1.4 percent and that for 2025 was lowered to 1.1 percent from 1.2 percent. The outlook for 2026 was reduced to 1.0 percent from 1.1 percent. Regarding economic growth, the SNB said gross domestic product is set to grow around 1 percent this year. Unemployment is likely to continue to rise marginally and the utilisation of production capacity is expected to decline slightly. For next year, the bank projected economic growth of around 1.5 percent supported by somewhat stronger demand from abroad. Subsequently, the Swiss franc fell 0.6% against the dollar and 0.4% against the euro after the decision. Elsewhere in Europe, Norways central bank held its key policy rate at 4.5%. The krona rose 0.4% against the dollar. The Bank Of England left its key policy rate unchanged at 5.25%. Investors had been split on whether Switzerland's central bank, which unexpectedly kick-started Europe's rate-cutting cycle in March, would lower policy rates or hold them steady. In recent months, inflation has ticked back up as rents, tourism and energy costs drive prices higher. Ultimately, the recent strength of the the Swiss franc may have overshadowed the inflation bounce-back, according to analysts. The franc has jumped nearly 3% against the euro this month as investors sought safety from European political volatility. A strong franc is a double-edged sword for Switzerland. While it can help bring down inflation by making imports cheaper, it also weighs on growth by making Swiss goods more expensive for its trading partners.

On Thursday, the SMI gained 0.6 per cent to 12,128 points. Among the 20 SMI stocks, there were 17 price gainers and three price losers. A total of 17.88 (previously: 13.98) million shares were traded. Investors tended to favour cyclicals and financials, while the defensive heavyweights Nestle (+0.4%), Novartis (+0.4%) and Roche (-0.1%) were avoided for long stretches and only managed to edge higher in late trading. Geberit and Sika added 1.3 and 1.4 per cent respectively. UBS shares advanced by 1.1 per cent. Swiss Life, Swiss Re and Zurich shares recorded increases of up to 1.5 per cent. Richemont fell by 0.9 per cent and Swatch by 1.6 per cent. Declining exports to the important sales markets of China and Hong Kong in particular could result in lower consensus estimates for the two watch manufacturers.

Europe
European stocks traded higher on Thursday as the Swiss National Bank lowered its key rate, and Norway's Norges Bank kept borrowing costs on hold, as did the PBoC . The Stoxx Europe 600 index gained 0.9% to 518.9 points. In Paris, the CAC 40 and SBF 120 added 1.3% and 1.4% respectively. The DAX 40 advanced 1% in Frankfurt and the FTSE 100 climbed 0.8% in London. Stationery, lighters and shavers manufacturer Bic (-12.3%) lowered its sales growth target for 2024, due to a worse-than-expected deterioration in the US lighter market. At an investor day, food group Danone (-2.6%) announced plans to grow its operating profit before non-recurring items (EBIT) "faster" than sales between 2025 and 2028. Analysts at Stifel regretted the absence of a quantified margin target. Energy industry engineering group Technip Energies (+4.2%) has confirmed winning a "significant" contract, worth between €50 million and €250 million in revenue, from national oil company Indian Oil Corporation Limited (IOCL). Vallourec (+1.7%), the manufacturer of seamless tubes for the oil industry, has announced a two-year extension of its contract signed in 2019 with the Abu Dhabi National Oil Company (Adnoc). The contract will run until January 2027.

United States
Shares of Nvidia gave up early gains on Thursday, pulling the S&P 500 and Nasdaq Composite down from all-time highs. The S&P 500 finished 0.3% lower, after earlier surpassing 5500 in intraday trading for the first time. The Nasdaq Composite dipped 0.8%, snapping a seven-session streak of record closes. The Dow Jones Industrial Average bucked the trend, rising about 300 points, or 0.8%. Shares of Nvidia couldn’t keep the rally going on Thursday, falling 3.5%. That pressured the S&P 500 and Nasdaq, which are weighted by market value, meaning big companies such as Nvidia have an outsize influence over the direction of the indexes. The moves came after data on housing and the labor market released Thursday suggested the economy is slowing. Housing starts and building permits fell from a month ago, according to Commerce Department data. Weekly jobless claims came in at 238,000, higher than economists expected. Investors have been highly attuned to economic data for signs that inflation is easing, which could keep the Federal Reserve on track this year to cut interest rates, usually a boon to the stock market. In individual stocks, Darden Restaurants shares rose 1.5% after the Olive Garden parent reported sales growth in line with analysts’ expectations for its latest quarter. Shares of Gilead Sciences gained 8.5% after the company said one of its investigational drugs had for the first time shown 100% effectiveness in preventing HIV in a study. Accenture’s stock climbed 7.3% after the company reported a fall in quarterly net income, but a jump in new bookings, including more than $900 million tied to generative AI. Salesforce’s 4.3% jump contributed about 65 points to the Dow industrial’s gains. Shares of Trump Media & Technology Group fell 15% after the Securities and Exchange Commission declared effective the registration of additional shares, leaving the stock vulnerable to dilution. Kroger’s stock declined 3.3% after the grocery-store operator reported better-than-expected adjusted profit and sales, but slightly weaker gross margins.

Asia
Stocks in Asia mostly fell on Friday. Hong Kong was the region's worst performer, down 1.7 per cent. Shanghai lost 0.4 per cent and Seoul fell by 0.8 per cent. Japan's Nikkei index performed best in Tokyo. It dropped only slightly to 38,596 points. Support comes from the yen, which has fallen again and this time more significantly, a favourable factor for the country's export industry. The yen has slipped from 158.12 yen per dollar to 158.90 compared to the same time the previous day. In Seoul, there is talk of profit-taking with regard to the performance of technology stocks and especially the high-flyer Nvidia on Wall Street. Samsung Electronics lost 1.2 per cent after three consecutive days of gains. SK Hynix fell by 2.3 per cent.

Bonds
U.S. Treasury yields lose momentum in late trade to end the post-holiday session with small gains, and remain on path for a weekly rise, partially reverting last week’s sharp fall triggered by lower-than-expected inflation readings. Indicators were mixed, with May housing starts contracting while weekly jobless claims again failed to show signs of meaningful labor easing. Economists surveyed by The Wall Street Journal expect May existing home sales tomorrow to decline 1.4%, on top of April’s 1.9% contraction. The 10-year U.S. Treasury note yield gained 4 basis points to 4.262%. The 2-year U.S. Treasury note yield rose by 2 basis points to 4.741%.

Analysis
Swiss Re price target: JPMorgan upgrades to CHF 135 (120) - Overweight
Rating VAT: Morgan Stanley lowers to Equal Weight (Overweight) - Target CHF 530
Target price Givaudan: UBS raises to CHF 4250 (3900) - Neutral
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