GENEVA, SWITZERLAND – International financial markets fell sharply Monday 7 May after weekend French and Greek national elections showed voters calling for change. Markets reacted with renewed concern over Europe’s ability to deal with its debt crisis.
Financial media, including the Financial Times and The Guardian, have underscored investors’ worries about how the new French Socialist president will work with Germany, which opposes funding growth with more debt.
Asian stock markets slid, reacting also to the release of disappointing US labour data. Tokyo’s Nikkei 225 index closed down 2.6 percent to 9,134.26 and Hong Kong’s Hang Seng dropped 2.4 percent to 20,582.24.
In Europe, major stock markets fell sharply in the morning, then recovered. France’s CAC 40 lost 1.9 percent in early trading to settle at a gain of 1.03 percent at closing time, while Germany’s DAX index was down by as much as 2.7 percent during the day but closed down only 0.2 percent.
Markets in London were closed for a bank holiday.
Currency, bond markets also reflecting uncertainty
The Greek stock exchange suffered from the political stalemate left from Sunday’s elections, with the Athens Stock Exchange Index, ASE, down 6.7 percent. Greek voters shunned the centrist governing parties responsible for austerity measures which have been adopted to avoid a national default. Although extreme left- and right-wing parties saw important gains, no single party achieved an absolute majority, and the country faces the possibility of a second round of voting and prolonged uncertainty.
Currency markets were also jittery.
The euro hit a three and a half year low against the pound and a three month low against the dollar, dipping under the $1.30 level.
Yields on government bonds were mixed, with the 10-year French bond decreasing to 2.8 percent and the 10-year German bond rising to 1.6 percent. The yield on Greek debt rose even further with the 10-year government bond there reaching 23.30 percent.
Swiss National Bank says its policy is paying off, expects 1% growth as economy stabilizes
ZURICH, SWITZERLAND – The Swiss National Bank Thursday 15 March issued a relatively optimistic quarterly report despite the Ides of March date. It confirmed that it is maintaining its CHF1.20 to the euro exchange rate cap, and is keeping in place the rest of its four-pronged policy:
- the SNB will continue to maintain liquidity on the money market at an exceptionally high level
- the target range for the three-month Libor (interest rate to prime banks) will remain unchanged at 0.00–0.25 percent
- the SNB will continue to maintain liquidity on the money market at an exceptionally high level.
Swiss franc, Swiss economy balancing act: the SNB will continue to intervene in currency markets (photo, Ellen Wallace)
“While the high value of the Swiss franc continues to present enormous challenges to the economy, the minimum exchange rate is having an impact. It has reduced exchange rate volatility and given business leaders a better basis for planning. There are growing indications that Switzerland’s economy is stabilizing. For 2012, the SNB is now forecasting moderate growth, at close to 1 percent,” the bank notes in a statement Thursday morning.
The central bank remains very cautious, however, noting that “In the foreseeable future, there is no risk of inflation in Switzerland. Compared to December, the inflation forecast has even fallen further. If developments in the international economy are worse than foreseen, or if the Swiss franc does not weaken further, as expected, downside risks for price stability could re-emerge.”
The Swiss Federal Council spent the day out of the office, instead holding their official meeting at the Chateau Mercier in Sierre
Update 20:00 BERN, SWITZERLAND – The Swiss franc rose yet again Wednesday 17 August, turning around after a dip at the start of the week against most major currencies. The shift comes in the wake of a Franco-German meeting that left investors lukewarm and efforts by the Swiss National Bank to reduce its strength that appear to have been viewed as not too onerous.
The currency developments were accompanied by the news late Wednesday that Switzerland could well have a 2011 budget surplus, rather than the deficit earlier predicted.
The franc finished the day in Switzerland at CHF.78 for the dollar, from a dollar high of CHF.80. The euro was trading at CHF1.1394 from a euro high of CHF1.1554 (figures, Reuters).
Tougher mortgage rules part of Swiss franc fallout
An undesirable side effect of the measures taken to rein in the Swiss franc is that banks are loaning out money for mortgages too easily, with very low interest rates, says the Federal Council. Strict rules about mortgage deposits are not being observed as much as they should, argues the council, so starting in January 2012 banks will face tougher restrictions and will be required to ask for larger deposits. The announcement was one of several linked to news of the federal surplus.
Central bank expands supply of liquidity to Swiss franc money market
The SNB announced early in the day that it was taking three steps, effective immediately, to “expand again significantly the supply of liquidity to the Swiss franc money market. In so doing, it is increasing the downward pressure on money market interest rates with a view to further weakening the Swiss franc exchange rate”:
- it aims to expand banks’ sight deposits at the SNB, from CHF 120 billion to CHF 200 billion
- to achieve this new target level as quickly as possible, it will continue to repurchase outstanding SNB bill
- for the same reason it will continue to employ foreign exchange swaps.
Budget surplus won’t have an impact on 2012 budget
The Swiss Federal Council, after a special summer session at the Chateau Mercier in Sierre Wednesday, announced that the 2011 budget is likely to have a CHF2.5 billion surplus instead of the CHF600 million deficit predicted earlier. The turnaround is due mainly to higher than forecast revenues, with companies’ profits higher than predicted in 2010 as the economic recovery proved to be stronger than expected. Government spending was also lower than predicted.
The new figures are based on accounts at the end of June 2011.
The 2012 budget was approved in May, at which point it was already clear that revenues for 2010 would be higher than expected, so the Federal Council says the new, mid-year predictions, will have no impact on the 2012 budget.
CHF2 billion industrial aid programme set up to avoid sending jobs abroad, reduce price fixing
The cabinet announced Wednesday it is setting aside CHF2 billion to rapidly boost industry, which is suffering from the role of the Swiss franc as a safe haven for foreign investors. The fund, the Federal Council acknowledges, is “large” and will be used to “strengthen industries that have been hit hard by the negative foreign exchange situation and to prevent jobs from going abroad”, including tourism.
The council will also seek a rapid change in the laws covering competition that would touch a number of price-fixing areas and it plans to provide Comco, the competition commission, with four additional posts for two years, to better enforce existing legislation.
Federal Council press release, details of the CHF2 billion industrial aid fund (Fre)
Update 11:00 GENEVA, SWITZERLAND – Currency markets have reacted to the news of a US Congressional debt ceiling deal with volatility. The Sunday 31 July announcement of a deal was followed by a boost in the dollar, when then lost its gains against the Swiss franc, sinking to an all-time low Monday of CHF0.7729 to the dollar. The franc and the yen were safe havens Monday against the dollar, following news last week of slower growth of the US economy than that reported earlier.
Tuesday morning the dollar had climbed back slightly against the Swiss franc, to CHF0.7787, but the euro slipped below CHF1.10 Tuesday morning and also slipped against the dollar, over concerns about European economic growth slowing and the sovereign debt crisis.
Investors in currency, stock and other financial markets have been jittery recently over the political game going on in Washington to prevent the US from defaulting on its loans. The Financial Times writes 2 August that even the deal announced Sunday but still subject to a vote wasn’t enough to “Even though there was a sense of calm in Washington that the deal would be passed following Sunday’s agreement between the US president and congressional leaders, there was plenty of last-minute drama to keep investors on edge.
TSR reports Tuesday morning that the Swiss franc is, more than ever, a safe haven currency.
Links to other sites: Bloomberg, Financial Times
Swiss franc rises against dollar, euro
Zurich, Switzerland (GenevaLunch) – The Swiss National Bank Thursday 6 May has reportedly called a halt to the purchase of euros it has appeared to be making for some days. The SNB had been intervening to keep the euro above CHF1.43, possibly because of a 0.9 percent increase in the consumer price index in April, according to analysts questioned by the Financial Times and Reuters. The euro fell by 2 percent in just minutes earlier Thursday to CHF1.41, its weakest point against the franc since the euro was created.
The euro fell to a 14-month low against the US dollar, to $1.2736 on news that the European Central Bank would not offer “new measures to ease the Greek crisis”, Reuters reports.
Zurich, Switzerland (GenevaLunch) - The Swiss franc reached €1.50 for the first time since March 2009 Friday 18 December, and it rose against the US dollar to 1.04. The move prompted observers to ask if the Swiss National Bank has stepped back from its policy, in place for more than six months, to weaken the franc.
Links to other sites: Bloomberg, Reuters, Swiss National Bank
European economic leaders have called for “discipline” in currency markets as the US dollar continues its slide against the Euro, contributing to pricier gold and more expensive oil. European Central Bank head Jean-Claude Trichet said that “excessive volatility was bad for economic development”. The Euro has gained 20 percent against the dollar since earlier this year, which threatens to undermine Europe’s economic recovery, by making its exports more expensive.
Oil is trading at $80 a barrel in New York, reflecting increased optimism about the state of the world economy, but also the weak dollar, and moved sharply beyond its $65 – 75 per barrel trading range it has maintained since July. Gold stayed above $1060 an ounce in trading 20 October and looks set to set new record prices, also on a weaker dollar, traders say. Bloomberg, Reuters, Wall Street Journal
Bern, Switzerland (GenevaLunch) – The Swiss central bank (SNB) will maintain the monetary policy it introduced in March, it announced today 18 June. Its predictions for the Swiss economy continue to be guardedly pessimistic, because of the negative effects the world economy has on Switzerland. The one positive note has been the decline in the prices of commodities, such as oil, but this has contributed to deflation. Swiss prices will decline by 0.5 percent in 2009, says the Swiss state secretariat for economic affairs (SECO) in its report yesterday 17 June.
The Financial Times offers a video forecast with charts for China’s renminbi, with its impact on oil and dollar prices.
