Swiss central bank move rocks Euro, dollar and Wall Street

Stock markets get whacked again by something completely different—an unannounced Swiss frank currency move that caught most traders flatfooted.

Composite Swiss franc notes images.
Composite of Swiss franc notes images, assembled via Wikipedia images.

WASHINGTON, January 15, 2015 – As of noon EST Thursday, U.S. stock markets—already staggering from two days of wildly negative action—were smacked again right out of the blue, courtesy of the Swiss central bank.

After spending considerable time and attention to defending the Swiss franc (Sfr) and Swiss business against turmoil in the Eurozone by capping the currency’s value vs. the Euro, Switzerland’s central bank suddenly removed its long-held peg against that battered, multi-country currency.

‘“This,’” said James Stanton, head of foreign exchange at deVere Group, speaking to Forbes, “‘is the biggest FX shocker in years.’”

The Forbes report continues, noting that Stanton “is referring to the extraordinary climb of 30% by the Swiss Franc, one of the world’s most important safe haven currencies, against the euro this morning. At one stage, it was up 39% against both the euro and the dollar. Movements like this simply don’t happen in big, widely held currencies like the Swiss franc….

“Three years ago the Swiss central bank put in place a ceiling of Sfr1.20 per euro to stop the currency’s appreciation, which was causing problems for Swiss exporters, among other things. This morning – to general surprise – it abandoned the ceiling. It appears to have done so because of an expected sovereign bond buying programme from the European Central Bank in the next few days. That, in turn, is expected to increase demand for safe haven currencies like the Swiss Franc, and the Swiss National Bank – the central bank – seems to have decided that it just would not be able to defend its self-imposed ceiling in the circumstances.”

Bears on Wall Street.
The bears are having fun on Wall Street again today, just like they did in this 1907 cartoon. (Via Wikipedia)

Actually, looking back over the last 36 hours or so, the Maven thinks this wasn’t a “general surprise” at all, except maybe to retail traders. Along with the ongoing oil price decline, it’s clear to yours truly that this move was the real reason behind the last two days of wild, precipitous stock market declines, not only in the U.S., but in most other world exchanges as well.

As usual, the international 1% – aka “they”— clearly knew what the Swiss were going to do ahead of time, jacking the markets up ahead of time, and then slamming them down, particularly over the last two days either by massive selling, massive shorting, or, likely, both. And why wouldn’t they, having been tipped off ahead of time by their political friends that this immensely significant Swiss move was imminent.

An odd result of this advance knowledge: most of the heavy selling in stocks, particularly in the greatly affected banking sector, was already out of the way by market open today. Mostly it was the megabanks themselves that got hit again this morning, due to reporting already-expected lousy earnings, courtesy of continuing low interest rates and the profit-terminating bite of the vastly overreaching Dodd-Frank Act.

The broader market itself is only down about 50 Dow points as of this writing, not bad considering today’s Swiss currency move. Given today’s lousy unemployment claims number, a renewed if slight drop in oil prices after yesterday’s bounce up, and the announcement by Target that it was shuttering all its Canadian stores, the fact that markets were not flattened much further this morning, things could have been a whole lot worse.

Today’s trading tips

Given what we’ve reported above, we should be grateful our portfolios didn’t lose even more money this morning. Strongly performing areas continue to be relatively conservative stocks like high-yielding REITs and utilities. Pharmas and biotechs have been doing well, too, even though they’ve been nicked a bit by today’s action, largely due to the guaranteed money coming their way courtesy of Obamacare and your higher premiums and/or bigger deductibles.

Our recently mentioned pharma picks, Pfizer (PFE) and Roche (RHHBY) have done pretty well here, although PFE is off slightly this morning. Oddly, Swiss holders of Roche got smacked by the sudden move in their currency today, while U.S. holders of Roche got a currency bonus, with RHHBY currently up 65 cents in active trading.

Our large-ish holding in Bank of America’s “A” warrants (BAC/WS/A in Schwab accounts, different symbols used by other brokerages) got hammered today, right along with their parent bank which, expectedly, reported lackluster numbers today, largely due, we suspect, to continuing U.S. government extortion aimed at the megabanks that the Feds in 2008 had forced to buy bankrupt financial entities.

In other words, the government continues to punish these banks for what they were essentially ordered to do. Typically, the moolah has been extracted from the shareholders, however. Fat bonuses for bank bigwigs, however, have remained untouched so they can continue to make outsize campaign contributions to Democrats, the party of the common man. Disgusting, it’s true. But the only political choice we seem to have these days is our choice of voting for the lesser of two evils each election cycle.

As a result of the continuing nonsense, we’ll likely take a trading holiday today and probably tomorrow, unless there’s an opportunistic move to be made. Remember, among other things, this is also options expiration week. That has served to magnify this week’s headline-driven volatility even more.

We can probably expect a negative Friday and a weird upcoming Tuesday. That’s the first trading day next week, due to Monday’s MLK holiday schedule. For more on this, keep reading.

MLK Day trading schedule

On Monday, January 19, 2015, all U.S. markets (including equity, option, and fixed income) will be closed in observance of Martin Luther King, Jr. Day. There will be no Pre-Market or After Hours trading sessions.

Canadian markets are open for business on Monday. However, Canadian equity orders placed after the close of the U.S. Market on Friday, January 16, 2015, will route to the Canadian exchanges on Tuesday, January 20, 2015. Check with your individual brokerage for further details.

Settlement dates will be affected accordingly.

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