Franc, European shares soar after Swiss currency cap lifted

Thu Jan 15, 2015 4:39pm EST
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By Herbert Lash

NEW YORK (Reuters) - Switzerland's move to jettison a three-year-old cap on the franc threw global markets into turmoil on Thursday, sending the currency and most European shares soaring while bond yields and Swiss equities tumbled.

U.S. stocks closed lower, marking a fifth straight session of losses, as bank results disappointed and investors fretted over the potential impact of global economic weakness on U.S. corporate earnings.

In Europe, the franc jumped almost 30 percent in the chaotic minutes after the Swiss National Bank stunned markets by lifting a 1.20-per-euro cap that was created in 2011 to avert deflation at the height of the euro zone crisis.

The Swiss currency surged as high as 0.8500 franc per euro before paring gains to trade 16 percent higher at 1.01010. The sharp moves in financial markets shattered any hopes investors had that recent volatility might ease.

Switzerland's main share index fell 8.7 percent in its biggest single-day percentage loss in 25 years, wiping about $100 billion of market value off Swiss companies. The rise in the value of the franc is expected to deal a blow to Swiss companies whose businesses include big exports to Europe.

But major European stock indexes rose 2 percent or more on the prospect the European Central Bank was close to new stimulus, and shares in emerging markets also rose.

Some traders said Swiss officials must have expected a tide of euros from the ECB through stimulus known as quantitative easing, or QE, which is seen as positive for European stocks.

"The reason you're seeing Europe up so much, they're basically doing it on the premise of significant euro depreciation as a follow-on for QE," said Dan Morris, global investment strategist at TIAA-Cref, which has about $600 billion under management.   Continued...

A box with text 'Frankfurt stock exchange' is pictured in front of the German share price index DAX board at the Frankfurt stock exchange, January 15, 2015. REUTERS/Kai Pfaffenbach