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Swiss capital controls could be last resort if franc surges: UBS

      

JUL 2, 20159:14 PM

[ZURICH] Switzerland could impose controls on cash withdrawals from banks if all else fails in its battle to rein in the safe-haven Swiss franc, UBS's chief economist for Switzerland has suggested.

Daniel Kalt made clear on Thursday such drastic measures were highly unlikely and could only be a last resort in severe market turbulence. He stressed this was his own conjecture, not something he had heard the Swiss National Bank was planning.

Limiting cash withdrawals could make holding francs less attractive in the eyes of domestic and foreign investors, he said. "This would be a really strong signal," Mr Kalt told Reuters.

The SNB declined comment, reiterating only that it had not excluded any potential policy tools, including capital controls.

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The franc soared in January when the SNB scrapped its cap of 1.20 francs to the euro. It has stabilised around 1.05 to the euro this week despite jitters over Greece's debt crisis.

The SNB has already adopted negative interest rates, a charge on some cash deposits and currency intervention as ways to keep the franc from rising.

"In an extreme scenario if the SNB had to push interest rates further into negative territory (Switzerland) could be forced to introduce some kind of capital controls to prevent circumvention of negative rates via holding cash," Kalt said.

Banks so far have not passed on negative rates to retail savers, but could do so if official rates turn even more negative. This in turn could prompt savers to pull cash out of banks and horde 1,000-franc notes at home, Kalt said.

To discourage this, Switzerland could either limit withdrawals to a few hundred francs a day or else make banks charge more for withdrawals than savers actually take out, thus imposing negative rates on cash holdings as well.

Mr Kalt said controls would not have to limit international capital flows but had to be viewed warily, given the blow they would deliver to Switzerland's reputation as a liberal and stable financial centre.

REUTERS

      

US factory orders fall more than expected on transportation

New orders for US factory goods fell more than expected in May on weak demand for transportation and electrical equipment, a sign that manufacturing remained mired in a soft patch. 

PHOTO: SPH

JUL 2, 201510:13 PM

[WASHINGTON] New orders for US factory goods fell more than expected in May on weak demand for transportation and electrical equipment, a sign that manufacturing remained mired in a soft patch.

The Commerce Department said on Thursday new orders for manufactured goods dropped 1.0 per cent after a revised 0.7 per cent decline in April. Factory orders have dropped in nine of the last 10 months.

Economists had forecast orders falling 0.5 per cent in May after April's previously reported 0.4 per cent drop.

Excluding the volatile transport component, orders nudged up 0.1 per cent in May, reversing April's 0.1 per cent decline.

Manufacturing, which accounts for about 12 per cent of the US economy, is struggling with the lingering effects of a strong dollar and lower crude oil prices, which has squeezed profits of multinational corporations and oil-field firms.

There are signs, however, the sector is starting to stabilize. A report on Wednesday showed the Institute for Supply Management's national factory activity index rose to a five-month high in June. A sub-index of new orders increased for a third straight month.

In addition, the rout in the energy sector looks close to running it course as crude oil prices recover after falling nearly 60 per cent from June last year to March. Energy firms pulled only three rigs from U.S. oil fields last week, the smallest number in five weeks.

The Commerce Department report showed orders for transportation equipment tumbled 6.5 per cent in May. Orders for electrical equipment, appliances and components fell 2.8 per cent.

The department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - fell 0.4 per cent instead of the 0.4 per cent gain reported last month.

It was the second straight month of decline in these so-called core capital goods.

Shipments of core capital goods, used to calculate business equipment spending in the gross domestic product report, were revised down to show a 0.1 per cent dip in May instead of the previously reported 0.3 per cent rise.

REUTERS