Switzerland’s central bank left its limit on the franc unchanged, resisting pressure from exporters to further curb the strength of the currency as officials take time to assess deflation risks.
The currency strengthened as the Swiss National Bank (SNBN), led by Philipp Hildebrand, kept the franc’s minimum exchange rate at 1.20 per euro today. That’s in line with the forecasts of nine out of 13 economists in a Bloomberg News survey. The Zurich- based central bank also maintained its benchmark interest rate at zero.
The SNB has defended the limit for three months without a breach after pledging to buy “unlimited” quantities of foreign currency to do so. Officials have weighed the risks of instituting a higher franc floor at a time of a worsening European fiscal crisis against the threat of deflation as the Swiss economy cools.
The SNB has adopted ’’a wait-and-see stance,’’ said Claude Maurer, an economist at Credit Suisse Group AG in Zurich. “It’s not unlikely that they will lower their forecast for inflation and economic growth in the next year and take further measures which might include raising the limit on the franc.”
The SNB in its statement today reiterated its pledge to defend the exchange rate limit with “utmost determination.” It predicts inflation of minus 0.3 percent in 2012 and stopped short of warning explicitly of deflation risks.
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German Homebuilding Permits Soar as Investors Seek Hedge Against Inflation
German homebuilding permits soared to records this year as investors sought real estate as a hedge against inflation and a refuge from the sovereign debt crisis.
Permits rose 22 percent in the first nine months, while privately owned apartments gained 43 percent, the most in more than two decades, according to data compiled by the Wiesbaden, Germany-based Federal Statistics Office.
“It’s fear of inflation,” Heiko Stiepelmann, deputy chief executive officer for Germany’s Construction Industry Association, said in an interview. “The strong rise is explained by a lack of profitable, and especially safe, alternatives for investing.”
Inflation in the 17 countries using the euro remained at a three-year high in October as consumer prices climbed by an annual 3 percent, the European Union’s statistics office said Nov. 16. That compares with the 1.9 percent yield investors get for owning German government bonds maturing in 10 years. Most equity indexes in Europe have fallen by more than 10 percent this year.
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China’s Foreign Direct Investment Falls With Manufacturing Set to Contract
Foreign direct investment in China fell last month from a year earlier, the first decline since 2009, and a survey indicated that manufacturing may contract for a second month.
Investment slid 9.8 percent to $8.76 billion, after rising 8.8 percent in October, the Ministry of Commerce said in a statement in Beijing today. A preliminary reading of 49 in December for a purchasing managers’ index from HSBC Holdings Plc and Markit Economics compared with a final 47.7 in November. A number below 50 points to a contraction.
Europe’s debt crisis and global financial turmoil may prompt more cuts in banks’ reserve requirements in China by limiting inflows of cash from abroad. Moody’s Investors Service said today that it’s maintaining a negative outlook on Chinese property developers because government curbs will mean slowing sales, tight bank credit and pressure on prices and profits.
“There should be one more cut in reserve ratios in December,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd., who previously worked at the World Bank. The central bank announced the first reduction in three years on Nov. 30, the day before the HSBC PMI indicated the biggest contraction in manufacturing since March 2009.
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China to Impose Anti-Dumping Duties on GM, U.S. Cars
China announced plans to impose anti-dumping duties on some vehicles imported from the U.S. after failing to block a U.S. tariff on Chinese tires.
Punitive duties will be as high as 12.9 percent for autos from General Motors Co. (GM) and 8.8 percent for Chrysler Group LLC, China’s commerce ministry said today on its website. The U.S. units of Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI) will face duties of 2 percent and 2.7 percent respectively, it said.
“The move shows that China is always capable of intervening politically in its markets,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. “The automobile industry is very dependent on China for growth, and there’s doubts about the pace of future expansion.”
Auto sales in China are rising at the slowest pace in 13 years, putting pressure on local Chinese producers to consolidate as GM and other foreign carmakers post gains. Automakers declined on concern higher duties may soften demand in the world’s largest car market.
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Japan Manufacturing Slides on Europe Crisis
Japan’s largest manufacturers became more pessimistic than economists expected and China reported the first decline in foreign direct investment since 2009 as Europe’s crisis drags down the global economy.
The Tankan large manufacturer index of sentiment fell to minus 4 in December, the Bank of Japan (8301) said today in Tokyo, worse than the median estimate for a reading of minus 2 by 24 economists surveyed by Bloomberg News. Investment in China slid 9.8 percent from a year earlier to $8.76 billion, the Ministry of Commerce said.
In Japan, manufacturers from Toyota Motor Corp. (7203) to TDK Corp. (6762) are also under threat from a yen that rose to a postwar record against the dollar on Oct. 31 as investors seek a haven from turmoil in Europe. Chinese manufacturing may contract for a second month in December as Europe’s debt crisis weighs on exports and home sales slide, a separate survey showed.
“The outlook completely hinges on what happens in Europe,” said Yoshimasa Maruyama, an economist at Itochu Corp. (8001) in Tokyo. “If the debt crisis worsens further and spreads to the U.S., that could spark a recession there too and that would mean a recession for Japan as well.”
The preliminary reading of 49 for a China purchasing managers’ index from HSBC Holdings Plc and Markit Economics compares with a final number of 47.7 for November. The line between contraction and expansion is 50.
The yen traded at 78.08 against the dollar at 12:44 p.m. in Tokyo. The currency’s post World War II high was 75.35 and companies surveyed by the central bank said they expect it to trade at 79.02 for the year ending March 31. It was at 101.44 against the euro.
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