Markets rally on EZ QE hopes

As the day has progressed the panic caused by the Swiss National Bank has subsided, and hope for eurozone quantitative easing has seen markets rally into the close with the FTSE battling to post a triple-digit gain.

Swiss flags
Source: Bloomberg

EUR/CHF sees 4000-point move

The Swiss National Bank's actions today, in ending its battle to hold EUR/CHF above the $1.20 level, triggered a 4000-point move in less than 20 minutes, dropping the currency pair by 30% in short order. This might be the sort of action deemed acceptable in some of the world’s more exotic currencies, but not the Swiss franc. Considering the SNB's comments only a month ago about continuing to hold this line in the sand, any lingering doubts that the European Central Bank will embark on QE next week have all but evaporated. Today’s actions by the Swiss had the distinct look of someone jumping before they were unceremoniously pushed.

UK equity markets collapse temporarily

Such was the panic markets felt on the back of the collapse in EUR/CHF, vocal levels on trading floors bore more similarity to the phone-broking days of yesteryear than modern day platform trading. The collapse in equity markets has not lasted the day, however, as markets have taken today's actions as a sign that ECB QE is even more likely next week. Any hope traders have of a quieter day tomorrow might be short lived as inflation figures from around Europe and the US are due to be posted, and the increasing deflationary pressure from oil markets should ensure worryingly low levels in more than a few countries. 

Regardless of the bounce in copper, Vedanta has added to yesterday’s double-digit falls as it sits at the top of the biggest FTSE fallers list, down some 3.5%. Even though both Argos and Homebase have missed their Christmas sales targets, Home Retail remains confident that it will hit full-year targets. Crystalising thoughts that most traders had already, Chancellor George Osborne has stated that he would like to recover tax payer’s investments in the Royal Bank of Scotland, and would be looking to make a decision regarding the government’s stake quickly after the May general elections. 

US banks continue disappointing streak

Today was the turn of Bank of America and Citigroup to post fourth-quarter figures, with both selling off before the US market open. The former announced better earnings while revenues missed the mark, and the latter continues to feel the pain of falling profits and legal charges. The last two days of figures from the US banks have been less than inspiring, and further disappointments from those yet to report look inevitable. The burden of raising morale has fallen on the shoulders of the US economic data releases, following the corporates' failure to create any optimism. Although the Empire State Manufacturing index kicked higher, the bigger-than-expected US unemployment claims will have dented the overall perception of the US recovery. 

Market chaos triggers flight-to-security

Chaos and uncertainty are the perfect recipe for improving the perceived attractiveness of gold, and both hit the markets aggressively as a flight to security from the Swiss franc-inspired bedlam surrounding Europe gripped traders.

Both WTI and Brent crude have taken advantage of the markets' focus being taken off them by retesting the $50 a barrel level; they have matched each other stride-for-stride in their efforts to distance themselves from the Saudi oil minister’s prophetic $40 call.

The last 24 hours have also seen copper claw back a little of the lost ground caused by the World Bank’s global growth downgrade yesterday, more from relief than improving fundamentals.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.