The merchandise trade surplus widened slightly from a larger revised CHF4.74 billion in August to CHF4.95 billion in September. However, it was well short of the CH6.36 billion posted a year ago. The yearly deterioration reflected a 9.1 percent drop in exports, accelerating sharply from a 0.9 percent fall in mid-quarter, that easily more than offset a 4.6 percent decline in imports.

Seasonally adjusted, the surplus stood at CHF3.90 billion, down from August's upwardly revised CHF4.02 billion and a 5-month low. Exports decreased 1.4 percent on the month, their third straight fall, while imports were off 1.1 percent. Imports have not risen since April. The real trade balance also worsened appreciably as a 3.5 percent decrease in export volumes was compounded by a 0.6 percent rise in imports.

Today's update points to a negative contribution from net merchandise exports to real GDP growth in the third quarter. However, it also leaves the Swiss RPI at exactly zero and the RPI-P at 25. In other words, overall economic activity would be beating market expectations but for the surprising weakness of prices. Still, it will be the latter point that the SNB will be focusing on in its December policy announcement.

The merchandise trade balance measures the difference between the total value of Swiss merchandise exports and imports. The focus is on the balance of trade in goods, excluding precious metals, gemstones, works of art and antiques. This is provided in unadjusted and seasonally adjusted measures for cash and volume.

Changes in the level of imports and exports along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the Swiss franc in the foreign exchange market. Switzerland's major trading partners include Germany, France, Italy and the United States. While Switzerland still exports large amounts of traditional products such as chocolate and watches, more than half of Swiss exports are in mechanical and electrical engineering and chemicals today. A positive trade balance indicates a trade surplus while a negative balance represents a trade deficit. Trade surpluses indicate that foreigners are buying more Swiss goods, which are typically paid for in Swiss Francs. This translates into greater demand for the currency and upward pressure on the value of the Franc. However, if the balance is a deficit, Swiss consumers are buying goods from trading partners which translates into higher demand for foreign currencies placing downward pressure on the value of the Franc.