Some
time ago it was rumoured in the Forex market that certain large players were
jousting with the Swiss authorities over the value of the Swiss franc, or
“Swissie” as it is known. The idea was that they would put pressure on to
increase the value of the currency in the knowledge that this was the last
thing the Swiss wanted. At the same time the franc represented a safe haven for
global funds at a time when economies around the world were under severe
pressure because of the Global Financial Crisis and its aftermath. But the
strong currency was not good for the sale of all those watches, pharmaceuticals
and Toblerones that the Swiss like to export, especially into the Euro region.
Finally,
the Swiss National Bank (SNB) announced that, no matter what happened, it was
going to use as much of its foreign reserves as were required in order to
prevent the EUR/CHF exchange rate falling below 1.20 (A fall in the pair means
a stronger franc).
The
results of this resolve can be seen on the chart above (the labeled period). Sometime
after that the Euro strengthened naturally and the pressure seemed to off. Now,
however, with the serious issues affecting the Single currency around uber-low
inflation, high unemployment and low growth, the Swiss problem is back.
When
will the SNB step in to reassert its position? Has it done so already?
Another reason for low oil prices?
I
am indebted to Jon Hilsenrath of the Wall Street Journal for the insight that
there may be a reason, in addition to the extraction of shale oil in the US, for the precipitate fall in the
global price of the black gold. In a recent piece he highlights the significance of falling
producer prices in China. While data for Chinese output and demand are not the
most reliable, falls in wholesale prices indicate a rise in inventory and / or
slowing demand.
This
would impact on the use of oil, as much as anything else. As Hilserath says, “…overcapacity
is overcapacity and empty apartment buildings are empty apartment buildings”.
If he is correct in his analysis, and given the importance that China has
assumed in the world, economies all over the planet might be facing a situation
where the deflation problem could be something that is about to get a lot worse
before it gets better.
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