Latest news with #deflation
Reuters
an hour ago
- Business
- Reuters
Franc leading Swiss back to deflation vortex, asset stockpiling
LONDON, June 5 (Reuters) - The supercharged Swiss franc is sucking Switzerland back into a deflationary vortex that its central bank will once again struggle to escape, possibly recycling a fresh wave of financial flows back out across the world. The Swiss franc, long perceived as a haven in stressful times, has seen its broad nominal exchange rate index surge 5% since U.S. President Donald Trump's return to the White House. But this is just the latest leg of a relentless appreciation of 20% in five years and 33% over the past decade. In a small open economy, that latest move has been enough to force deflationary relapse and the first drop in annual aggregate Swiss consumer prices in four years last month. In turn, the Swiss National Bank will almost certainly cut its already meagre 0.25% interest rate back to zero this month. A return to the negative interest rate era of the eight years through 2022 now seems almost inevitable further out. Markets already see a one-in-three chance of that happening as soon as the SNB's meeting on June 19. As the last experiment showed, there's a limit to how negative rates can go - mainly because it would be cheaper for big savers to vault their own money than have banks dock more than about 0.75% of deposits annually. And so the SNB may quickly have to resume selling francs and expanding its balance sheet once again to ward off deflation. It's been here before. The SNB's balance sheet ballooned almost 10-fold over the decade to 2022, hitting more than 1 trillion francs ($1.3 trillion) at its peak. While it has shrunk since to 843 billion francs, it remains bigger than annual Swiss GDP and more than four times that of the Federal Reserve's balance sheet as a share of the U.S. economy. Even though the SNB has appeared somewhat reluctant to resume outright franc sales recently, its top brass has pointedly refused to rule out either negative rates or another protracted bout of franc intervention. A sustained reversal of the franc's fortunes may allow the country to dodge the problem of course - with much of this year's franc surge coming against the ebbing dollar, unlike the euro/Swiss rate focus of a decade ago during the euro crisis. But if "safety" flows are at least part of what's driving the Swiss currency higher this year, then it's hard to see trade or geopolitical peace breaking out anytime soon. While this may all feel like deja vu in Switzerland, a slow-motion repeat of the "frankenshock" episode, it speaks to some of the biggest trends impacting markets today and has numerous implications globally. Rebuilding SNB reserves from today's already lofty levels could put upward pressure on a range of euro debt and dollar equity assets. The SNB remains a top 50 shareholder in all seven of the top U.S. big tech megacap stocks, for example, as well as euro zone government debt. The SNB diversified away from the euro in favour of dollars during the euro debt crisis over a decade ago and now holds an equal share of both euro and dollar holdings, as Barclays analysts point out. "A reversal of that trend would not be unprecedented," they said, referring to "jitters" around the prospect of the SNB diversifying away from the dollar in light of recent trade developments. While the SNB's trade-weighted franc index is dominated by a 42% euro weighting, the dollar still commands a 14% share and the dollar, yuan, yen and sterling combined account for about a third of the total. And so a sharp weakening of the dollar, dollar-priced commodities and other dollar-linked currencies still packs a punch for Switzerland regardless of relative stability on the euro. The other complication of a renewed intervention bout is that Switzerland finds itself firmly on the radar of the Trump Treasury's "currency manipulator" report, expected by analysts to be published this month. ING's Francesco Pesole reckons one reason the SNB has been holding off from intervention so far this year is precisely because it wants to avoid being labelled a manipulator by Washington and thus face a more extreme tariff onslaught. Pesole says that with Switzerland already in the "currency manipulator" report's sights due to the country's trade surplus with the U.S., its current account surplus more broadly and its long history of currency capping, the SNB may push negative rates as far as they can go before wading back into foreign exchange markets. "Should the (U.S.) Treasury's FX report be published before then, markets may increase their bets on a 50bp rate cut in June on the view that being added to the monitoring list further reduces the scope for FX interventions," he wrote. Unlike previous franc surges, when FX purchases were the obvious solution, the SNB may now find itself "damned if it does, and damned if it doesn't." The opinions expressed here are those of the author, a columnist for Reuters
Zawya
3 hours ago
- Business
- Zawya
Franc leading Swiss back to deflation vortex, asset stockpiling: Mike Dolan
LONDON - The supercharged Swiss franc is sucking Switzerland back into a deflationary vortex that its central bank will once again struggle to escape, possibly recycling a fresh wave of financial flows back out across the world. The Swiss franc, long perceived as a haven in stressful times, has seen its broad nominal exchange rate index surge 5% since U.S. President Donald Trump's return to the White House. But this is just the latest leg of a relentless appreciation of 20% in five years and 33% over the past decade. In a small open economy, that latest move has been enough to force deflationary relapse and the first drop in annual aggregate Swiss consumer prices in four years last month. In turn, the Swiss National Bank will almost certainly cut its already meagre 0.25% interest rate back to zero this month. A return to the negative interest rate era of the eight years through 2022 now seems almost inevitable further out. Markets already see a one-in-three chance of that happening as soon as the SNB's meeting on June 19. As the last experiment showed, there's a limit to how negative rates can go - mainly because it would be cheaper for big savers to vault their own money than have banks dock more than about 0.75% of deposits annually. And so the SNB may quickly have to resume selling francs and expanding its balance sheet once again to ward off deflation. It's been here before. The SNB's balance sheet ballooned almost 10-fold over the decade to 2022, hitting more than 1 trillion francs ($1.3 trillion) at its peak. While it has shrunk since to 843 billion francs, it remains bigger than annual Swiss GDP and more than four times that of the Federal Reserve's balance sheet as a share of the U.S. economy. Even though the SNB has appeared somewhat reluctant to resume outright franc sales recently, its top brass has pointedly refused to rule out either negative rates or another protracted bout of franc intervention. A sustained reversal of the franc's fortunes may allow the country to dodge the problem of course - with much of this year's franc surge coming against the ebbing dollar, unlike the euro/Swiss rate focus of a decade ago during the euro crisis. But if "safety" flows are at least part of what's driving the Swiss currency higher this year, then it's hard to see trade or geopolitical peace breaking out anytime soon. DEJA VU AND ZEITGEIST While this may all feel like deja vu in Switzerland, a slow-motion repeat of the "frankenshock" episode, it speaks to some of the biggest trends impacting markets today and has numerous implications globally. Rebuilding SNB reserves from today's already lofty levels could put upward pressure on a range of euro debt and dollar equity assets. The SNB remains a top 50 shareholder in all seven of the top U.S. big tech megacap stocks, for example, as well as euro zone government debt. The SNB diversified away from the euro in favour of dollars during the euro debt crisis over a decade ago and now holds an equal share of both euro and dollar holdings, as Barclays analysts point out. "A reversal of that trend would not be unprecedented," they said, referring to "jitters" around the prospect of the SNB diversifying away from the dollar in light of recent trade developments. While the SNB's trade-weighted franc index is dominated by a 42% euro weighting, the dollar still commands a 14% share and the dollar, yuan, yen and sterling combined account for about a third of the total. And so a sharp weakening of the dollar, dollar-priced commodities and other dollar-linked currencies still packs a punch for Switzerland regardless of relative stability on the euro. MANIPULATOR The other complication of a renewed intervention bout is that Switzerland finds itself firmly on the radar of the Trump Treasury's "currency manipulator" report, expected by analysts to be published this month. ING's Francesco Pesole reckons one reason the SNB has been holding off from intervention so far this year is precisely because it wants to avoid being labelled a manipulator by Washington and thus face a more extreme tariff onslaught. Pesole says that with Switzerland already in the "currency manipulator" report's sights due to the country's trade surplus with the U.S., its current account surplus more broadly and its long history of currency capping, the SNB may push negative rates as far as they can go before wading back into foreign exchange markets. "Should the (U.S.) Treasury's FX report be published before then, markets may increase their bets on a 50bp rate cut in June on the view that being added to the monitoring list further reduces the scope for FX interventions," he wrote. Unlike previous franc surges, when FX purchases were the obvious solution, the SNB may now find itself "damned if it does, and damned if it doesn't." The opinions expressed here are those of the author, a columnist for Reuters (By Mike Dolan; Editing by Jamie Freed)
South China Morning Post
a day ago
- Business
- South China Morning Post
China stocks benefit from shift away from US assets; second-half outlook cloudy: Natixis
China's equity markets are benefiting from a global shift away from US assets, though the outlook for the second half of 2025 is clouded by signs of a structural economic slowdown, persistent deflationary pressure and worries about an underwhelming policy stance from Beijing, according to strategists. In spite of elevated political and economic uncertainties, the probability of a global recession remained low, Natixis Investment Managers said on Tuesday. But the firm was cautiously optimistic about Chinese equities in the latter half of the year. 'The markets and investors are awaiting the second leg [of the stimulus policies], which is the fiscal policy … but we do not expect a massive or significant turn in China that will support internal demand,' he said. Chetouane said deflationary pressure was a core concern. 'Without inflation, companies struggle to protect their margins or deliver earnings growth, and the market is waiting for a green light from Beijing,' he said.
Wall Street Journal
2 days ago
- Business
- Wall Street Journal
Switzerland Records Deflation for First Time in Four Years
Swiss consumer prices were in deflationary territory in May, a milestone that raises the prospect the Swiss National Bank will cut interest rates further later this month. Annual inflation was down 0.1% compared with the same month of last year, slowing from the flat reading of April and matching consensus. Switzerland last recorded deflation in March 2021.
South China Morning Post
2 days ago
- Automotive
- South China Morning Post
‘Full of gunpowder': new price wars among China carmakers mask hidden dangers, Beijing warns
Beijing has amplified its warnings over cutthroat price wars among carmakers as deflationary pressure persists in the world's second-largest economy, and economists say a reflation is likely to remain elusive. The Ministry of Industry and Information Technology (MIIT), party mouthpieces and a carmaker association aired concerns at the weekend over recent discounts offered by manufacturers, while collectively deeming price wars a threat to product quality and the long-term development of the industry. 'Uncontrolled price wars among businesses are a classic example of 'involutionary' competition. They hinder companies' sustained investment in research and development, ultimately affecting product quality, performance and service levels,' the MIIT was quoted as saying on Saturday by the state-run Xinhua. 'There are no winners in price wars, and certainly no future.' 'Involution', or neijuan , refers to excessive competition for limited resources or opportunities. The ministry also vowed to step up governance over such competition in the industry. Echoing the ministry's call, People's Daily admonished the industry in a commentary on Sunday, describing the domestic carmaking sector as being in a 'sub-healthy' state, pointing to its shrinking profit margin in the face of industrial overcapacity.
