Financial World In Shock
As the value of a euro plunges significantly against a Swiss franc, we are on the cusp of a major financial event.
World central bankers have now been put on deflation alert as interest rates have been moved to -0.75% by the Swiss central bank. In the annals of financial history 15th January 2015 will go down as monumentally significant.
ATCA 5000 already indicated in early January 2015 that this year is going to be extremely turbulent. Note, "Why's the Oil Price Collapsing? Answer: $8+ Trillion Carry Trade" and "Amber Alert: Emerging Markets Financial Crisis?"
The formidable Swiss franc made a massive, unprecedented and epochal move in terms of foreign exchange markets, ranging from 15% to 30% swings in a single day, as though it was an insignificant currency without the decorum of a hard, reliable and solid asset which normally only moves by a few percent a day when in the midst of a monumental shift.
Negative Interest Rates
If such negative interest rates were to be deployed by other major central banks eventually, wouldn't this have profoundly awkward consequences for the future of banking, finance and world trade?
In parallel, note the relentless downward march of government bond yields from Japan to the US and from Germany to the UK. The SNB's latest move may be the clearest indication yet that de facto negative interest rates may be the next chapter in the global financial crisis for certain major nations whilst other commodity producing countries go towards becoming modern Weimar Republic equivalents with double digit inflation and eventual hyperinflation.
What has happened on this day is going to wreck the Swiss National Bank's reputation as a reliable and credible force in international markets.
Why did the Swiss central bank governor Thomas Jordan and his deputy Jean-Pierre Danthine give interviews in recent weeks and months that the Swiss franc would not be allowed to rise beyond the cap against the euro of CHF 1.20? Clearly the European Central Bank (ECB) is about to do something major in terms of printing money, i.e. quantitative easing. Did this scare the Swiss central bankers into a U-turn? Especially when:
- This single event will bring further suffering to the beleaguered Swiss private banking and private wealth management industry; and
- It will also hammer Swiss exporters and risk importing deflation through the Swiss current account.
No wonder the Zurich stock market fell by nearly 9%, its biggest one day fall since 1989.
It may take years to understand what really happened on this day, because its unintended consequences will continue to cascade. Rumours from trading desks abound that some very big UK and US based macro hedge funds were caught short on the Swiss franc, and may get severely damaged as a result of their positions and associated margin calls.
Eastern European currencies tumbled and banking stocks slumped after Switzerland’s move to allow its currency to appreciate stoked concern individuals will struggle to repay loans denominated in Swiss francs, which have been very popular in Eastern Europe. The Polish zloty, Hungarian forint, Romanian leu, Bulgarian lev and Czech koruna were the biggest decliners against the franc today among 24 emerging market countries.
As this is an evolving situation, ATCA 5000 will return to this subject.
Why did this event fundamentally change the course of financial history not just for Switzerland but also for Eastern and Western Europe -- albeit for different reasons -- and perhaps for the entire interlinked global economy?
What are your thoughts, observations and views? We are keen to listen and to learn. Please add your comments below.
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