U.S. Equity Futures Flat as Franc Soars on Swiss Move ("Extremely violent and totally unexpected")

Reuters and Fox News ^ | 15 Jan 15 | Reuters and Fox staff

[SkyPilot]

Global markets were thrown into turmoil on Thursday as a shock move by Switzerland to abandon its more than three-year-old cap on the franc sent the currency soaring and Europe's shares and bond yields tumbling.

The franc jumped by almost 30 percent in a chaotic few minutes after the 1.20 per euro cap in place since late 2011 was lifted, surging past parity to trade as high as 0.8052 francs per euro. It was trading at 1.02600 at just after 1200 GMT.

The move reversed an earlier rebound in risk appetite following an overnight recovery in commodity prices.

Over 100 billion francs ($98 billion) was wiped off the value of Swiss stocks, their biggest daily fall in 26 years, while the pan-European FTSEurofirst 300 slumped 2 percent and Wall Street futures turned negative.

As investors scrambled for traditional safe-haven assets, there were new record low yields for Germany's government bonds and gains for the yen and gold.

"This is extremely violent and totally unexpected, the central bank didn't prepare the market for it," said Alexandre Baradez, chief market analyst at IG in France.

"It's sparking panic across all asset classes. It suddenly revives the risk of central bank policy mistakes, right when central bank action is what's keeping equity markets going."

The view among traders was that the Swiss central bank must have felt it could no longer hold out against the tide of money coming its way as the European Central Bank prepares to start quantitative easing and investors pour out of riskier markets such as Russia.

Adding to the nervous mood, oil has also resumed its slide. Brent crude fell back to $47.50 as a rebound by copper and other metals after their big falls on Wednesday also started to wane.

[GeronL]

I doubt this has much to do with Ukraine. It seems like much of the world thinks printing money will make things better. It doesn’t.

[John W]

Much of the world seems to be brain-dead stupid.

[expat2]

They decoupled it because they could no longer sustain the continued printing of francs (and using them to buy euros) to hold the price of the franc down.

[expat2]

Yes, that excessively increased the number of people buying francs and selling euros since Europe is in trouble over energy.

[expat2]

I sat with FXF and EUO for about 2 years waiting for this to happen. It seemed inevitable.

[SAJ]

That's the problem with "inevitability". One has exactly no idea when the "inevitable" will occur. It always does, of course. What precisely is the threshhold of patience, eh?

When the dust from SNB's move settles in a week or so, I think it is almost surely correct to write EUR puts, perhaps 4 or 5 handles out of the money, and pocket the premium. For SEVERAL months, unless the psychos at ECB decide to do a Bernanke and print the hell out of Euro.

Frankly, just now, I'd much rather sell coffee puts. Look at the 160 March puts expiring 2/13, for example.

Good trading to you!

[Candor7]

So lets get this straight, Belgium and France are killing jihadists, and Obama is releasing them from GITMO?

HEY.......SEND THEM TO FRANCE AND BELGIUM!

[expat2]

Yes, e.g., the 2000 collapse of the market seemed inevitable long before it actually happened and you can get killed trying to fight the popular ‘irrational exuberance’. With the euo/fxf play, however, it was a wash until a decoupling actually happened, and the only risk (other than opportunity cost) was the unlikely event that after a decoupling the euro would outstrip the franc, which was a very unlikely possibility.