European markets end week on positive note
After all the turmoil of the Swiss central bank removing the currency cap against the euro, stock markets have moved sharply higher once more. Investors have become convinced the European Central Bank will unveil some kind of quantitative easing programme following its meeting next week, and the Swiss move has only added fuel to that particular fire. With oil and commodities also recovering some ground after their recent slides, shares have ended the week in fairly upbeat mood. The final scores showed:
- The FTSE 100 finished 51.49 points or 0.79% at 6550.27
- Germany’s Dax is up 1.35% to 10167.77
- France’s Cac closed up 1.31% at 4379.62
- Italy’s FTSE MIB added 2.18% to 19,254.54
- Spain’s Ibex ended 0.56% to 10,038.9
But the Swiss stock market continued to slide after the Swiss bank move, with the SMI index down 5.96% at 7899.59.
The euro made an attempt at recovering against the Swiss franc in early trading, but that was fairly short lived. It is currently down 0.96% at 0.98 francs.
Meanwhile on Wall Street, the Dow Jones Industrial Average is up 53 points or 0.31%.
On that note it’s time to close up for the day and indeed the week. Thanks for all your comments, and we’ll be back again on Monday.
Some speculation ahead of the ECB meeting next week, widely expected to unveil some form of quantitative easing:
*ECB TO SET 20%-25% PURCHASE LIMIT FOR COUNTRIES' DEBT: SPIEGEL #ECB #QE PLANS SEE NATIONAL CENTRAL BANKS BUYING OWN-COUNTRY DEBT
— Credit Macro PM (@lebullmarche) January 16, 2015
*GERMANY'S SPIEGEL MAGAZINE DOESN'T CITE SOURCES ON ECB QE PLAN
— Michael Hewson (@mhewson_CMC) January 16, 2015
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Meanwhile Reuters is reporting that Jefferies has expressed interest in a rescue deal for FXCM.
The euro continues to sink, as the prospects of the European Central Bank unveiling plans for quantitative easing next week grow, and the repercussions of the Swiss removing the currency cap continue to reverberate.
After an early recovery against the Swiss franc the euro is now down 0.65% at 0.98 francs, while it has also lost ground against the dollar:
#BREAKING Euro drops under $1.15 for the first time since Nov 2003
— Agence France-Presse (@AFP) January 16, 2015
Meanwhile retail broker FXCM, which has admitted that it may be in breach of some regulatory capital requirements, is being monitored by US regulators after its shares tumbled around 90%
A spokeswoman for the US Commodity Futures Trading Commission told Reuters: “We are reviewing the company’s situation.”
And still they come. US retail trader Interactive Brokers lost around $120m due to Thursday’s currency turmoil. In a statement it said:
Due to the sudden move in the value of the Swiss franc yesterday, several of our customers suffered losses in excess of their deposit with us. Such debits amount to approximately $120m, less than 2.5% of our net worth.
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Here’s Reuters full take on the Barclays story:
Barclays lost tens of millions of dollars from the volatile moves in the Swiss franc on Thursday, an industry source said on Friday.
Several banking sources said most major banks were likely to have lost money from the unprecedented surge in the value of the franc after the Swiss central bank abandoned a cap on the currency.
Banks lost money because the franc moved so quickly firms could not immediately fill client orders, the sources said. The first industry source said Barclays would honour all the trades made in spot Swiss franc trading.
Retail foreign exchange brokers were nursing hefty losses from the Swiss currency move and broker Alpari UK filed for insolvency.
Back with US data, and consumer confidence has come in much higher than forecast, despite some weaker figures recently including retail sales.
The University of Michigan consumer sentiment index showed a preliminary reading of 98.2 for January, compared to expectations of 94.1 and a final figure for December of 93.6.
Michigan Confidence (Jan P) 98.2 versus 94.1 expected, previous 93.6 - Highest since 2004.
— Sigma Squawk (@SigmaSquawk) January 16, 2015
The surge in Consumer Confidence right now is epic pic.twitter.com/OW8cqRo1DF
— Joseph Weisenthal (@TheStalwart) January 16, 2015
Reuters is reporting sources saying Barclays lost “tens of millions” of dollars following the volatile currency movements on Thursday after the Swiss central bank removed its currency cap against the euro.
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Trading in US forex broker FXCM, which is battling for survival, has been delayed. Its stock tumbled nearly 90% in pre-market trading, as investors reacted to client losses suffered after the sharp appreciation of the Swiss franc yesterday.
The broker has admitted that it may be in breach of some regulatory capital requirements.
Credit Suisse said in a note:
Absent an overnight capital raise FXCM will not be able to conduct business.
Wall Street has opened slightly higher. The Dow Jones is 0.2% ahead at 17,358.41 and the Nasdaq has gained 0.42% to 4591.065.
Most European stocks now positive except Swiss market
Most European stock markets have pushed into positive territory.
The FTSE 100 index in London is trading nearly 30 points higher, or 0.4%, at 6527.09. The CAC in Paris is 0.5% ahead, Germany’s Dax has edged up 0.1%, Italy’s FTSE MiB is 1.3% higher and Spain’s Ibex is flat.
However, Swiss stocks are still down 4.3% after hitting a 13-month low earlier in the session. Watchmakers Swatch and Richemont have both lost more than 6% after heavy losses yesterday. They are particularly vulnerable to a higher franc because their products are mainly produced in Switzerland but sold abroad.
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Italy slashes growth forecast
Meanwhile, Italy’s central bank has slashed its growth forecast for this year and predicted that deflation would persist throughout the year. The Bank of Italy is now predicting 2015 growth of just 0.4% – the first time the economy has grown since 2011 – compared with 1.3% in July.
The eurozone’s third-largest economy has not posted a single quarter of growth in the last three years.
Angela Merkel, the German chancellor, met with ECB president Mario Draghi on Wednesday ahead of next week’s policy meeting, at which the central bank is widely expected to unveil large-scale bond-buying. A German government spokesman told Reuters:
It was one of the informal meetings that take place regularly.
Here’s more detail on the earlier news that two major Greek lenders have applied for emergency funding from the country’s central bank. Executives at both Eurobank and Alpha said this was precautionary and related partly to their exposure to Swiss franc mortgages. Both have yet to make use of the emergency liquidity assistance funds. A Eurobank executive told Reuters:
Swiss franc loan exposure is part of the reasons but not the main one.
Greek banks’ exposure to Swiss franc-denominated loans, mostly mortgages, ranges from 2 to 4% of their gross loans. Eurobank is more at risk with exposure of about 11% or €5.7bn, according to Euroxx Securities.
More US data: Factory output rose 0.3% last month, the Federal Reserve said, slightly better than expected. That marks the fourth month in a row manufacturing has grown, although it was much slower than November’s revised 1.3% growth.
Goldman Sachs profits rise 5%
Bankers at Goldman Sachs were paid an average of $373,265 (£245,544) in 2014 after profits at the highest profile firm on Wall Street rose 5%, our banking correspondent Jill Treanor writes.
Some $12.7bn was set aside to pay its 34,000 staff, who will learn the size of the individual payouts in the coming days. Some of them will receive far more than the average; data for 2013 shows that its most senior executives received an average of £3m.
But in the fourth quarter, profits at Goldman Sachs were down 7% after revenue fell in each of its four divisions - investment banking, client trading, lending and fund management - compared with a year earlier.
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US online trading platform Gain Capital says it made a profit on yesterday’s market turmoil.
Its CEO Glenn Stevens says:
Our strong risk-management framework allowed us to generate a profit on one of the most turbulent days for the global currency markets in recent years... We have positioned ourselves to effectively manage risk during both calm and tumultuous markets and our performance during this recent event shows that.
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US consumer prices showed their biggest fall for six years in December, as the slump in oil prices took its effect.
The consumer price index fell 0.4% last month, after declining 0.3% in November. In the 12 months to December, the index increased 0.8% after a 1.3% rise the previous month.
The readings were pretty much in line with expectations, but add to the sense that recent weak US data might see a delay in the Federal Reserve raising interest rates. Most economists expected an increase in borrowing costs in June, but this may be pushed back into the second half of the year.
US CPI and PPI pic.twitter.com/Uu6akUwAGh
— cigolo (@cigolo) January 16, 2015
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FXCM, the biggest US retail foreign-exchange brokerage, has seen its shares collapse in spectacular fashion in pre-market trading.
Earlier it admitted it had been hit by the Swiss bank move and that client debts could mean it was in breach of some capital requirements.
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Swiss government bond yields continue to slide.
50 basis points ... for 50 years. Swiss 50 year yield falls to just 0.5%: pic.twitter.com/tXlj7XF08H
— Jamie McGeever (@ReutersJamie) January 16, 2015
Dublin-based online forex broker AvaTrade has sought to reassure customers by saying the Swiss turmoil has had no material effect on the company, and its financial position remains strong.
The UKs Financial Conduct Authority says it is working closely with Alpari, the insolvent retail currency broker, the latest casualty of the Swiss currency chaos.
Spread-betting firm City Index also said “it’s business as usual”.
It has come to our attention that a number of retail brokerages have announced that this has resulted in them experiencing acute financial pressure. Following this and queries from customers, we would like to take the opportunity to reassure our clients and confirm to the market that City Index has not suffered any material impact as a result of yesterday’s volatility and our financial position has not been affected.
It is very much business as usual for City Index and our global client base.
Peter Cruddas, chief Executive of CMC Markets said while the firm has suffered “some losses” from the Swiss currency turmoil, it’s business as usual.
Yesterday’s unprecedented move by the Swiss National Bank created a large amount of volatility in the Swiss Franc and Foreign Exchange markets.
Like many of our competitors, CMC Markets sustained some losses, however, the overall impact including possible bad debts has not materially impacted the Group.
The Group’s balance sheet post these events remains strong, with a regulatory capital ratio of 24% (300% pre CRD IV) and own funds in excess of £130m. All retail client funds are fully segregated and protected.
Some of our competitors may suffer as a result of this market event but CMC Markets continues to have a strong balance sheet and business model; the Group remains on course to exceed last year’s financial performance.
It’s business as usual.
Here are some more quotes from the IEA report, which has fuelled oil prices. The agency said in its monthly outlook:
How low the market’s floor will be is anybody’s guess. But the sell-off is having an impact. A price recovery – barring any major disruption – may not be imminent, but signs are mounting that the tide will turn. A rebalancing may begin to occur in the second half of the year.
Oil prices have lost nearly 60% since June as production around the world went up.
Market summary
Time for another look at the markets.
- The Swiss franc has weakened today after yesterday’s huge gains. The euro now buys 1.0175 francs, up 2.7%.
- The Swiss stock market, however, is still down 4.6% at 8015.65 after falling more than 5% earlier.
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Swiss 10-year government bond yields have fallen below zero, marking the first time that the benchmark borrowing costs of a developed economy have gone negative.
- Crude oil prices have risen after the IEA said there are signs the tide may be turning. Brent crude is trading 2.3% higher at $49.37 a barrel.
- Most European stock markets are now down, with the exception of Italy’s FTSE MiB, up 0.2%. The FTSE 100 index in London has shed about 17 points, or 0.3%, to 6481.50.
It’s not the first time West Ham have lost their sponsor (forex broker Alpari has filed for insolvency, which spells an end to its £3m-a-year sponsorship for the London football club). Here’s our story. In 2008, when its then-sponsor XL Leisure went bust, its players had to wear patches on their shirts.
First XL, now WHU Sponsor @AlpariUKForex 'insolvent'! Third time lucky? Time for the patches! http://t.co/iiR3MoapuC pic.twitter.com/tPxuF9522p
— Stephen Base (@stephenbase67) January 16, 2015
The Swiss stock market is still down more than 5% at 7976.83.
Christoph Riniker, head of equity strategy at Julius Baer, warned investors not to sell Swiss equities at current levels. In contrast, he reckons that risk-aware investors might want to buy Swiss stocks.
Foreign investors are partly hedged from these losses as they could gain on the foreign exchange side. Given the marked international sales exposure of Swiss companies in aggregate, the dependency on Swiss franc price moves is not to underestimate. Consequently, companies with higher international sales exposure were hit more while purely domestically oriented companies only saw minimal losses.
Investors who hold positions in the Swiss equity market should remain patient and not sell on current levels. In contrast, we think that risk-aware investors might add Swiss equity exposure on current levels. There are a number of unanswered questions but after all, the Swiss economy has proved in the past that it can live with a strong Swiss franc. We would suggest concentrating on domestic and US dollar expo-sure and rather limit euro exposure going forward. We still believe that the US currency looks more robust than the euro, a tendency which might be even more pronounced once the ECB should start its quantitative easing programme.
London Capital Group estimates its total exposure to the Swiss franc’s surge at up to £1.7m, but reckons there won’t be a material impact on its business.
The impact on the company’s balance sheet from market and credit exposure will be dependent on the Company’s ability to recover client debts, but in total it will not exceed £1.7m.
All clients’ positions were closed at a more beneficial level than the company could close its own exposure.
The group is well capitalised with a strong balance sheet upon which the recent events relating to the Swiss Franc has had no material impact.
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Swiss bond yields go negative
Swiss 10-year government bond yields have turned negative for the first time ever. They’ve fallen to 0.003%, according to Tradeweb data.
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Oil prices could fall further but IEA sees signs 'tide will turn'
Meanwhile, oil prices could continue their slide, “but signs are mounting that the tide will turn,” the International Energy Authority said in its latest monthly oil report. The agency has cut its estimate for non-OPEC oil supply growth this year by 350,000 barrels a day since last month, to 950,000. It added: “lower prices do not appear to be stimulating demand just yet”.
Brokers aren’t the only casualties of the Swiss currency chaos. The Polish zloty tumbled more than 20% against the Swiss franc yesterday. In Poland, mortgages denominated in francs were worth 131bn zlotys at the end of November. However, FT Alphaville noted that is not very much, as a percentage of Poland’s GDP, in a blog entitled Stop worrying about Swiss franc mortgages in Poland.
The zloty fell 0.3% against the euro today but gained 1.6% against the franc as the Swiss currency pulled back from its highs. The Warsaw stock market shed 1.3%. Hungarian assets stabilised, with the forint rising 0.5% versus the euro.
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Just a reminder, London-based interdealer broker IG Group said yesterday it would take a hit of about £30m following the Swiss turmoil.
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Alpari said in a statement on its website:
The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency. Retail client funds continue to be segregated in accordance with FCA rules.
Elsewhere, the European Commission has issued a preliminary finding that Amazon’s tax arrangements in Luxembourg probably amount to “state aid” – despite Luxembourg’s claims to the contrary.
Alpari has turned off its phone lines, and emails are bouncing back as undeliverable, my colleague Jill Treanor tells me. The online broker’s last tweet last night:
Only 24hours to go #TradingTheWayItShouldBe @AlpariWestHam to win x2 WHU vs Hull tickets. Goodluck! #Alpari #COYI
— Alpari West Ham (@AlpariWestHam) January 15, 2015
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Online forex broker Alpari latest casualty of Swiss turmoil
Online forex broker Alpari UK, which sponsors West Ham football club, has entered insolvency after its clients suffered huge losses on the Swiss franc.
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Greece’s Alpha Bank and Eurobank have applied for emergency liquidity assistance from the Greek central bank, Reuters reported, citing a banking source.
The biggest US retail foreign-exchange brokerage FXCM also said client debts threatened its compliance with capital rules.
FXCM said “clients experienced significant losses” after the franc’s surge. This “generated negative equity balances owed to FXCM of approximately $225m.”
The New York-based broker added:
As a result of these debit balances, the company may be in breach of some regulatory capital requirements. We are actively discussing alternatives to return our capital to levels prior to today’s events and discussing the matter with our regulators.
Casualties from the Swiss currency shock include a New Zealand-based dealer that has gone bust.
Global Brokers NZ said losses from the franc’s surge are forcing it to shut down. Clients of the forex broker, which operates Excel Markets, have been told the company “can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business.” Here’s the statement in full.
New Zealand’s Financial Market Authority said it would be “seeking assurances that the client funds have been protected and segregated”.
Nick Parsons, the head of research for the UK and Europe at National Australia Bank, told Bloomberg:
I would be astonished if we did not see more casualties. This was a 180-degree about turn by the SNB. People feel hurt and betrayed.
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BP and JD Sports shares gain
BP is the biggest gainer on the FTSE 100 this morning, after a US judge ruled last night that the oil giant dumped 3.2m barrels of oil into the Gulf of Mexico in 2010 – about a quarter less than the US government had calculated. This means that BP faces a maximum fine of $13.7bn, less than a potential penalty of $18bn. Even so, this would still be the largest fine handed out for pollution in US history. BP shares rose 1.9% to 400p on the news.
JD Sports shares are also up, leading the FTSE 250 with a 7.2% gain to 505.83p, after a bumper Christmas trading update. The sports retailer upgraded its full-year profit forecasts after enjoying 12% growth in like-for-like sales in the five weeks to 3 January. Independent retail analyst Nick Bubb writes:
So Mike Ashley hasn’t yet succeeded in wiping out his old rival JD Sports...
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Inflation in Europe’s largest economy slowed to 0.2% in December, its slowest rate in over five years, Germany’s federal statistics office Destatis confirmed. You can read the press release here.
The Swiss stock market continues to slide, now down 3.8% at 8081.36, a fall of 319.25 points.
The euro suffered its biggest one-day drop against the Swiss franc in history yesterday after the shock move from the Swiss central bank. The single currency is holding just above an 11-year trough amid expectations that the Swiss move points to QE from the ECB next week, a large-scale programme of bond-buying. The euro tumbled 30% to 0.8696 Swiss francs within minutes after the SNB’s shock move yesterday, and is now trading at 1.0128.
Stock markets mixed
The FTSE 100 index in London is more than 20 points lower at 6477.15, a 0.3% fall. Germany’s Dax has shed 0.26% but other markets are up: Italy’s FTSE MiB has gained 0.5% and Spain’s Ibex 0.3%, while France’s CAC is flat.
Gold prices have benefited from the turmoil as investors piled into safe haven investments. Spot gold is trading at $1,257.80 an ounce, after jumping to $1,266.11 yesterday, a level last seen in September. Bullion is on course to notch up its best weekly performance since last March, up about 3% so far.
James Gardiner, a trader at MKS Group, told Reuters:
Gold looks like the flavour of the month at the moment... The SNB announcement has really shaken the market.
The Swiss stock market has lost another 2.7% in early trading, after plummeting as much as 14% yesterday to close down 8.7%. The Swiss franc has fallen back after yesterday’s massive gains, to 1.0184 per euro.
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Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European stock markets are expected to open lower after yesterday’s Swiss turmoil. Overnight, most Asian markets fell, with the Nikkei in Tokyo down 1.4% and the Hang Seng in Hong Kong losing 0.9%. Chinese stocks were a notable exception, with the Shanghai composite index gaining 1.2%, after the country’s central bank announced it would increase relending quotas to banks by $8.1bn to support agriculture and small companies.
Markets were caught on the hop and stocks plunged yesterday after the Swiss central bank ditched its currency cap against the euro. They recovered later and pushed into positive territory, with the exception of the Swiss stock market, which recorded its biggest daily percentage fall in 25 years, of 8.7%. Markets took heart from suggestions that the Swiss move meant the European Central Bank could finally unveil quantitative easing next week.
The Swiss franc jumped as much as 30% yesterday. The euro tumbled, from buying 1.20 francs to buying just 0.8052 at one stage, but it later recovered to around 1.04.
The Polish Zloty and Hungarian forint were also hit hard yesterday, and could well be hit further, says Michael Hewson, chief market analyst at CMC Markets UK.
The International Monetary Fund’s head, Christine Lagarde, called the Swiss National Bank’s decision “a bit of a surprise”. She said she had not been contacted by the SNB’s governor, and that she hoped he had told fellow central bank governors about his plan. Thomas Jordan declined to comment on this at a press conference yesterday.
Equity market calls, courtesy of Hewson:
FTSE100 is expected to open 53 points lower at 6,445
DAX is expected to open 62 points lower at 9,970
CAC40 is expected to open 33 points lower at 4,290
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