Posts belonging to Category Switzerland

Risk fears again dominate wise money markets

They seem to be coming thick and fast at the moment, but there are two more risk events to watch out for today that have the potential to significantly move the currency markets. Risk fears again dominate wise money marketsFirstly and very importantly the Swiss National Bank has just finished its monthly meeting and will keep the EUR/CHF peg steady at 1.20. There was a lot of talk that the SNB would be raising the peg to 1.25 which would have seen significant moves across the board in the Swiss Franc pairs and also the Euro pairs as happened when the central bank first introduced the peg.

The second risk event is a Spanish bond auction taking place at 9.30 this morning. The draining confidence in the Euro has seen large outflows from the single currency over the last week or so and it is very important to see if this leads to yields on Spanish bonds to increase once again.

Thankfully Britain retains its own currency, which is current market conditions seem to count for an awful lot. The UK also has a bond auction this morning but we will be looking for record lows, rather than highs when the auction is completed at 10.30.

In an interesting interview with a French newspaper the head of the Bank of France and ECB member Christian Noyer suggested it should be Britain, not France that loses its Triple-A rating.

It is almost unheard of for a central banker to speak out about another country’s credit rating let alone suggest that the markets should not accept the ratings as a valid guide to the strength of a nation’s financial health. Is Mr. Noyer priming us for an impeding French downgrade?

This afternoon there is a large amount of low importance US data due, which is unlikely to move the markets too much but important to watch out for given the Federal Reserve’s current wait and see stance.

Central Banks lend US Dollars to help euro bankers

Yesterday saw the world’s main central banks announce joint action to provide US Dollar liquidity, aimed at securing the funding needs of euro banks struggling to meet american funding requirements. Central Banks lend US Dollars to help euro bankers The money markets had been showing signs of stress, with several measures at their highest level since the financial crisis.

The loans will have three month maturities in contrast to the normal one week limit in central bank market operations so banks are given time in the run up to the end of the year to finish window dressing their results without worrying about funding issues.

The news gave a boost to the Euro against the Dollar, rising almost 2 cents in the course of the afternoon before falling back in the overnight Asian session.

The announcement was also good if you own bank shares, which clawed back recent losses especially if you bought the French lenders after their recent crashes.

More than £4 billion was wiped off UBS shares, however, as losses of $2 billion were uncovered stemming from trades put on by rogue trader in their London office.

The bank has not announced where the losses were made, but there is speculation that it could have stemmed from trades in the Swiss Franc which moved over 10 cents in a matter of minutes after the SNB announced it was pegging the currency to the Euro.

Have UBS not announced where the losses were made because of the potential embarrassment of a Swiss bank losing money as a direct result of the SNB intervention?

What the news has done is presented an open goal to all of the advocates of the ICB report on the ring fencing of retail banks from the “casino” investment banking side.

The timing was impeccable, not only was the fraud uncovered 3 years to the day of the Lehman bankruptcy, but it came in the same week as the report was published.

UK unemployment rises as students join dole queue

Official statistics yesterday indicated that the number of unemployed rose by 80,000 to over 2.5m in the last quarter.UK unemployment rises as students join dole queueAccording to the Office for National Statistics this was the largest increase for nearly two years leaving the overall percentage unemployed at 7.9%.

These latest figures come as blow to the government as they look to balance job losses in the public sector by created jobs in the private sector.

Chris Grayling said the figures “underline the scale of the challenge we face particularly given the slower growth across Europe and North America”.

He went on to say “The government is taking the steps needed to support growth and rebalance the economy,” said Grayling.

In terms of the long-term jobless, “our new Work Programme is now up and running across the country and will offer flexible support tailored to people’s needs to help them get into employment”.

The ONS also indicated that the numbers were boosted by students leaving their studies for the summer recess.

Over to the other side of the pond and US retail sales came to a halt during the month of August largely blamed by low consumer confidence and Hurricane Irene which hit the east coast of North America.

Initial estimates suggest that overall sales did not grow at all compared to 0.2% and 0.3% in the previous two months.

Biggest falls were seen in vehicles and clothing however Electronics and sports goods helped offset that particular fall.

There maybe some brighter news in the next quarter as postponed sales and repairs following the hurricane could lead to a decent growth figure for the final quarter of the year.

Finally, a developing story from Swiss bank UBS.

Just when you thought that things can’t get any worse- the swiss gnomes have discovered an unauthorised series of gambling positions by one of their staff and early estimates suggest this could lead to a £1.3 billion loss for the bank according to an official statement.

By comparison this amount compares to the entire profits for the whole bank from the past three months combined.

Could be an interesting story over the next few days and an additional headache for the SNB…

Wise money markets try to figure out next move

Chaos ensued across the markets yesterday following the SNB’s (Swiss National Bank) decision to announce they target minimum exchange rate to the Euro will be 1.20.Wise money markets try to figure out next moveThis led to a huge switch with traders and investors alike scurrying to get funds out of Geneva and into other safe havens.

The US Dollar was the main beneficiary from all of the panic with the Greenback gaining between 1 and 2% across the board.

The announcement by the SNB caught the market by surprise and they are the first central bank to properly stand up for their currency.

Whether they actually had to use any of their own money to weaken the Franc or if it was other investors and banks, we will have to wait and see once traders test that 1.20 level for a reaction.

Sterling suffered yesterday as the rush from the Swiss Francs into the most liquid currencies led to losses against most of its rivals.

The Pound hasn’t recovered today with the release of the Manufacturing and Industrial Production numbers.

Manufacturing came out as expected at 0.1%, but the Industrial number was worse at -0.2%, yet another set of weak figures for the UK economy.

Chancellor George Osborne came out fighting insisting he will continue with plans to cut the UK Government’s annual deficit and rejected calls from Labour’s Ed Balls for another tax on the financial sector.

Rollercoaster money markets

The FTSE fell dramatically yesterday losing nearly £50 billion (-3.7%) as traders were bombarded by bad news.Rollercoaster money marketsRBS was one of the worst performers, dropping 12 % after it was announced over the weekend that it is being sued by the US Federal Finance Housing Agency over allegations it misled buyers of mortgage portfolios.

Barclays and HSBC, are also in the firing line over a combined $11bn of suspect mortgage packages, lost 6.7 % and 3.8 % respectively.

The banking sector overall hit a two year low.

In addition to the banking news a deeper fall than expected fall in service sector growth also hit the FTSE, with the Markit/CIPS services purchasing managers’ index dropping from 55.4 in July to just 51.1.

The bad news was set against the familiar backdrop of Eurozone fears, with German and French indexes also suffering.

Angela Merkel’s government faces a court ruling tomorrow over claims Berlin is breaking German law and European treaties by contributing to bailouts.

This morning has seen dramatic events continue, the Swiss National Bank (SNB) set a minimum EURCHF exchange rate of 1.20, citing the recent strength as a threat to their overall economy.

SNB officials claim they have unreserved quantities to enforce the minimum exchange rate of 1.20.

So far this has been successful as we saw the EUR rise of from 1.10 to 1.21 in a matter of minutes.

This has been the latest attempt by the SNB to weaken its “Safe Heaven” currency as export limitations are beginning to hurt their overall economy.

This is dramatic move by the Bank as previous attempts of increasing deposits available to commercial banks coupled with a cut in interest rates has had limited success.

Finally overnight we saw the National Australia Bank maintain interest rates on hold at 4.75% where it has sat for almost one year.

Following the decision, RBA Gov Glenn Stevens said a key question for economic policy makers now is the extent to which global recession fears temper inflation pressures within Australia.

“The uncertainty and financial volatility is reducing confidence and may result in more cautious behavior by firms and households in major countries… At this stage, little evidence is available to gauge any effects of the European and U.S. problems on other regions,” he said.

Bernanke’s views on Quantitative Easing’s odds

FED Chairman Ben Bernanke has hinted that further Quantitative Easing is unlikely, saying instead the Fed is committed to keeping interest rates low until at least 2013.  Bernanke's views on Quantitative Easing's odds Mr Bernanke indicated QE2 was on the way from Jackson Hole this time last year, and the markets responded better than even he could have predicted.

One of the aims of zero interest rates and QE is to force money into risk assets, and it looks like equity markets are setting up for the expectation of a further round of easing being announced. But they may be bitterly disappointed.

The key differences from last time are that the spectre of deflation, one of the key motivators for QE2, is not the threat it was a year ago and there is also dissent from 3 Fed board members further clouding the Feds ability to implement any new round of QE.

So how does the Fed’s announcement impact FX markets?

Safe haven currencies such as the Swiss franc, Aussie Dollar and the Scandinavian Krona’s look set to be very dependant on the outcome of Friday’s speech.

They have all benefitted from diversification out of Dollars and the prospect of further money printing by the US so we can expect significant moves in both directions depending on the content.

Special attention needs to be paid to the Swissie which has the SNB on the other side of the trade should QE3 go ahead.

Along with the US announcement (or not) Friday also sees UK GDP figures released. If we take the overall tone of recent UK data as a guide it is hard to be optimistic about UK growth.

There seems to be significant economic headwinds, set to get stronger as government spending continues to fall and companies hoard cash instead of hire workers.

In line with forecast is the best we can hope for. Later in the day, but before said speech, US GDP is also released along with the University of Michigan confidence survey.

Quiet money markets- for a change

A bit of “calm before the storm” has entered the markets this morning with the chaos of the last fortnight seemingly forgotten about.Quiet money markets- for a changeThe week starts with a very data light day and with no comments due from any of the financial leaders across the globe, we look set to stay within tight ranges for todays trading.

It will be an interesting weeks trading for many of the major currencies.

The Swiss National Bank has been active in the markets trying to weaken the Franc further.

Meanwhile, the US Dollar which has taken a battering over the last fortnight faces another tough week with traders still speculating about how the huge debt pile the US Government has built up will affect growth.

The rest of the week is packed full of releases that are likely to set the trend for the next month.

Tuesday brings a raft of Euro data showing how the manufacturing and services sectors are performing while home sales in the US could be yet another weak number for the housing market.

Wednesday contains data from Germany about sentiment in the strongest Eurozone country though durable goods numbers from the States are likely to dampen anything positive with a negative figure due for new orders.

Thursday includes jobs statistics from the US while we will conclude the week with Fridays GDP data from both the UK and America and FED chief Ben Bernanke will be speaking.

This will be the key indicator for growth prospects with 0.2% and 1.1% expected respectively. The markets will be looking for numbers that at the very least match expectations otherwise we could be set for more volatility.

Swiss Franc keeps gaining ground

The Swiss franc hits record highs against the US Dollar and the euro as attempts by the Swiss National Bank prove unsuccessful in slowing the currency’s rise. Swiss Franc keeps gaining groundThe decision to expand their liquidity policy did very little to ease pressure as traders looked for more aggressive action including the pegging to the Euro or US Dollar.

Following the announcement the CHF continued to strengthen which reiterated the point additional steps will be required and currently sits at 1.3118.

In what has been a reverse of the overnight session, the Greenback continues to recover lost ground with EUR/USD back on its lows and AUD/USD down to 1.0480.

Equities are falling further led by Seoul down 2.6%, Taipei down 2.0%, Sydney and Tokyo just over 1.0%.

EUR/USD touched a fresh low overnight removing the buying interest at 1.4390.

On the face of it, there appears no reason for today’s moves but then again there was nothing apparent for the overnight moves.

Elsewhere USD/SGD has surged higher today after the MAS flooded the forward market with domestic funds. Negative interest rates are really catching on amongst the strong currencies.

Today in the UK we had retail sales at 9.30am which saw weak growth for the month of July as cash strapped consumers cut back on spending.

According to the Office for National Statistics sales volumes grew inline with the 0.2% expected figure but down from last months figure of 0.8%.

The ONS statement blamed a fall in household goods, clothing and footwear as consumer’s battle against the latest CPI figures which indicated a number of 4.4% from June’s 4.2% and well above the Bank of England’s target figure of 2%.

Sterling as a result has fallen from the highs of yesterdays 1.6570 against the US Dollar and currently sits at 1.6487 and 1.1466 against the Euro.

UK interest rates rise? No chance!

We have just seen the release of the minutes from the latest MPC meeting amidst speculation that one of the two members who have been voting for a rate rise will have rejoined the group in opting for no change. UK interest rates rise? No chance!In fact, both Martin Weale and Spencer Dale moved their votes leaving the committee unanimous in keeping rates unchanged for the coming month.

Sterling dropped as a result with it now very obvious that the MPC are much more concerned and united in their views over weak recovery prospects rather than problems arising from the current high inflation numbers.

Adam Posen remained the only member of the committee arguing and voting for an increase from the current level of Quantitative Easing.

Yesterday’s summit meeting between Sarkozy and Merkel produced nothing of real substance.

There was talk about harmonizing fiscal policy across the region- an absolute must if the Euro is to have a viable long-term future, but this is not essentially what the market wanted to hear.

Traders were hoping for was a cunning plan on how the two power houses of Europe were going to stabilise the current debt situation in the Eurozone.

The sentiment in the run up was that the concept of Eurozone bonds would be furthered and in support of this, the first steps to expanding the size of the EFSF would be outlined.

Instead, the duo explicitly denied the need for a bigger EFSF or a Euro-bond and it soon dawned that there was no plan to deal with the current market pressure.

The one measure they did propose was a financial transaction tax although this will meet great resistance from European banks and looks unworkable if the measures are restricted to just Eurozone countries.

The likelihood of the ‘Tobin’ tax proposal making it through into law looks very slim.

Italian and Spanish bonds started negatively again, pushing yields up, equities fell and flows moved back into the safe haven investments like gold and Swiss Francs.

The Swiss National Bank has been in the market again today to try and alleviate demand for their currency.

The Euro itself has held up reasonably well, especially given the weak GDP data released yesterday morning.

It still looks only a matter of time before the weight of negative sentiment has an effect.

Wise money markets looking for calm

Following last week’s US credit downgrade thus creating the highest levels of volatility seen for years, the wise money markets this week will be looking to restore some form of normality and calm. Wise money markets looking for calmWe saw huge swings in the FTSE which fell below the key 5000 mark on two trading sessions.

We also saw a brief bounce following the US Fed Chairman Ben Bernanke’s statement that the US will maintain interest rates at a low level only for unfounded rumours of French sovereign rating threat pushing the FTSE lower again.

This led to European leaders forcing a ban on short selling of banking stocks in four countries in an attempt to calm markets, however the success of this has been questioned by traders and City minister Lord Myners.

He said authorities and the Treasury should focus on more high-frequency trading which places trades within micro-seconds that exaggerates market volatility.

As a result of last week’s volatility we saw the Swiss Franc and Japanese Yen strengthen significantly as investors seeking protection from rising uncertainty in the markets.

Authorities in Japan and Switzerland are now looking at options to stop further appreciation in particular against the US Dollar.

Last week saw the JPY strengthen against the USD to 76.31 which last month prompted intervention from Japanese authorities to sell off the JPY.

In Switzerland the Franc did lose some ground as the Swiss National Bank’s indicated that it could align its currency to the Euro to prevent further escalation which moved GBPCHF from a low of 1.1511 last week to currently over 1.29.

Hope that you have a good week.