Swiss go negative, markets respond positively

The markets were awash with positivity, following oil’s creep above $60 per barrel, the US Fed showing faith in the US economy, and the Swiss Central Bank slashing its interest rates.

Following a FOMC statement yesterday that made it clear the Fed feels the US economy is in a healthy position, hinting at openness towards raising interest rates at some point next year, in a change of tact from previous pledges to keep zero-rates for the considerable future.

As expected, this injection of bullishness was felt on the global markets, with the Dow Jones closing nearly 250 points higher at 17349; with unemployment claims and the Philly Fed manufacturing index to be announced this afternoon, the US markets are finally in a position of strength following a week and a half of collapse.

Previous to the Fed’s announcement, the European indices had seen their own boost, as a rally in oil led to powerful finishes from the FTSE and the DAX. Today could have been shaky for these markets, as the Greeks failed to provide a clear answer to their election, and the EU Economic Summit looks set to provide volatility. However, a shock announcement from the Swiss Central Bank this morning saw yesterday afternoon’s positivity stretch into today. The Swiss revealed a slash in interest rates to -0.25%, in a pre-emptive move against the rest of Europe’s economies. This is a bid by the SNB to keep the Swiss franc artificially weak to maintain its cap against the euro.

This decision has been prompted by Russia’s ongoing rouble crisis, which has seen money flood into the perceived ‘safe haven’ of Switzerland, and the oncoming economic storm of Eurozone quantitative easing. With the huge hike in interest rates by Russia failing to have the effect it intended, and President Draghi seeking to push QE harder at the EU Economic Statement that begins today, the SNB is desperate to protect its currency cap against the euro. With the new rates taking effect from the 22nd January, the same date as the next ECB meeting, it appears that the Swiss might think they know more than they are letting on about the date of Eurozone stimulus.

Whilst money is flooding into Switzerland from Russia, Putin himself does not seem too bothered by his currency falling around his ears, as he stated this morning that Russia’s present economic situation can continue for the next two years if needs be. Whilst Putin has extraordinarily high approval ratings in Russia, his people may not be excited by the prospect of the extended economic collapse that the President is proposing, especially with more sanctions on the horizon.