Switzerland's move to jettison a three-year-old cap on the franc threw global markets into turmoil yesterday, sending the currency and most European shares soaring while bond yields and Swiss equities tumbled.
The franc jumped almost 30 per cent in the chaotic minutes after the Swiss National Bank stunned markets by lifting the 1.20-per-euro cap that had been in place since late 2011.
The Swiss currency surged as high as 0.8052 francs per euro before settling around 1.04280, shattering any hopes investors had that recent market volatility might ease.
Switzerland’s main share index fell 8.7 per cent in its biggest single-day decline by percentage in 25 years, wiping about $100 billion of market value off Swiss companies.
But major European stock indexs rose 2 per cent 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 (395.87 billion pounds) under management. High volatility across all asset prices is the main characteristic of the current marketplace, Morris said.
“We’re going to see this continued high volatility in equities, in fixed income and in currencies,” Morris said. “What's driving that, you got monetary policy out of sync globally. US going one way, ECB going another, Swiss going another, Sweden going another,' he said.
MSCI's all-country stock index, a measure of stock performance in 45 countries, rose 0.21 per cent. The pan-European FTSEurofirst 300 index of leading regional shares rose 2.62 per cent to close at a provisional 1,389.82.
On Wall Street, the Dow Jones industrial average fell 34.2 points, or 0.2 pe rcent, to 17,392.89. The S&P 500 slid 7.16 points, or 0.36 percent, to 2,004.11 and the Nasdaq Composite lost 31.66 points, or 0.68 per cent, to 4,607.66.
All Swiss government bill rates and bond yields out to nine- year maturities traded below zero after the central bank scrapped the exchange rate cap and lowered interest rates to a negative 0.75 per cent.
German 10-year yields reversed an earlier rise to hit new lows, while French and Belgian bonds underperformed their euro zone peers as the two countries were considered the main targets for Swiss central bank investment in the euro zone.
US Treasuries yields fell, with the 30-year yield hovering near record lows, and the benchmark 10-year bond rose 14/32 in price to yield 1.7869 per cent.
The dollar plummeted to 0.736 francs , the lowest since 2011, before paring losses. Broader concerns about the euro sent it to its weakest in 11 years against the dollar, while the greenback was last down 0.32 per cent against the safe-haven Japanese yen at 116.94 yen.