What a Swiss Surprise!
January 15, 2015
By Carmen Elena
A surprise move from Switzerland’s central bank (SNB) sent European stock markets into panic today. Although a few months ago, the public voted no in a referendum demanding the SNB keep higher gold reserves, the Swiss are returning to a more traditional stance in their monetary policies. With a €500 billion QE program coming from the ECB, an off-limits Russian market, Greek elections and subtle talks of bailout, tumbling oil prices and all the other good things happening in Europe, the Swiss bankers could see investors flocking to the safer assets in their economy. So they slightly closed the easy-money floodgates. This morning, they suddenly terminated the policy of pegging the franc at 1.2 per euro (an exchange rate ceiling), which they had maintained for the past three years, in which time their foreign currency reserves had more than doubled.
In just a few minutes, the value of the Swiss currency rose 30 percent, FTSE 300 dropped 2 percent, Wall Street futures turned negative, and the recent feeble rise in commodity prices was reversed. The Swiss stock market also fell by 9% as the SNB dropped the excuse it had been using to defend the exchange rate ceiling, that the Swiss franc was “exceptionally overvalued”. That’s all it took for the carefully-engineered house of cards to lose an entire tower. Just one unanticipated decision of a central bank to move out of the market revealed how disconnected financial markets are from the real economy, and how dependent they are on fiat inflation. Dramatic declarations from traders have already flooded news sites, describing the move as a “tsunami”, a “huge confusion”, and no less than “carnage” for Swiss exporters.
January 15, 2015
By Carmen Elena
A surprise move from Switzerland’s central bank (SNB) sent European stock markets into panic today. Although a few months ago, the public voted no in a referendum demanding the SNB keep higher gold reserves, the Swiss are returning to a more traditional stance in their monetary policies. With a €500 billion QE program coming from the ECB, an off-limits Russian market, Greek elections and subtle talks of bailout, tumbling oil prices and all the other good things happening in Europe, the Swiss bankers could see investors flocking to the safer assets in their economy. So they slightly closed the easy-money floodgates. This morning, they suddenly terminated the policy of pegging the franc at 1.2 per euro (an exchange rate ceiling), which they had maintained for the past three years, in which time their foreign currency reserves had more than doubled.
In just a few minutes, the value of the Swiss currency rose 30 percent, FTSE 300 dropped 2 percent, Wall Street futures turned negative, and the recent feeble rise in commodity prices was reversed. The Swiss stock market also fell by 9% as the SNB dropped the excuse it had been using to defend the exchange rate ceiling, that the Swiss franc was “exceptionally overvalued”. That’s all it took for the carefully-engineered house of cards to lose an entire tower. Just one unanticipated decision of a central bank to move out of the market revealed how disconnected financial markets are from the real economy, and how dependent they are on fiat inflation. Dramatic declarations from traders have already flooded news sites, describing the move as a “tsunami”, a “huge confusion”, and no less than “carnage” for Swiss exporters.
