Friday’s session continued to be somewhat chaotic, following Thursday’s news from the Swiss National Bank. There was plenty of price action across the market, though the focus does still seem to be all about the euro, which ultimately continued to lose value in the session.
The Swiss have said over the weekend that they are willing to intervene in the FX markets if the Franc does continue to be uncomfortably strong for them. Indications are that the economy could cope with a rate versus the Euro of around 1.10, though at the moment the market is still hovering around 10% lower than that, at close to parity.
Friday saw Alpari FX close for business after losses incurred with the violent move in the Franc. Everest Capital have also said they’ll be closing their largest fund, which was previously worth $830m, after significant losses were incurred.
FXCM will get a $300 million loan from Leucadia National Corp. after the broker warned Thursday that client losses due to the Swiss National Bank’s decision to let the franc trade freely against the euro threatened its compliance with capital rules.
While some on the brokerage end of industry are still processing the ultimate business impact, many statements are being issued to reassure prospective traders and current clients their operations are A-OK.
Brokers such as AVA TRADE, OmniCronFX, OANDA (even declined firms looking for buyers), CMC Markets, TradeStation and IronFX were reportedly unaffected by the Swiss Franc move due to strong risk management system.
The Euro is going to be very much in focus as we go into this week, with Mario Draghi likely to announce QE on Thursday. Details of the package are still very much an unknown, but Der spiegel and La Paz are both reporting that it is likely that each national central bank will be responsible for buying their own government’s debt and will be liable for 50% of any losses incurred in doing so. Mario Draghi met with Angela Merkel and Wolfgang Schaeuble at the weekend, presumably to go over this plan with them and highlight that in making each country liable for at least half of any losses, there would be a lot less risk associated with such a program, for Germany.
From Greece; the central bank have asked the ECB for emergency lending facilities to all four of its major banks ahead of the elections due on Sunday. At the moment only two of the four banks have requested funding themselves, but the central bank wants to get ahead of any accelerated bank runs that we might see.
From the British land, the EY Item Club have said that the Bank of England will be forced to keep rates at current levels until 2016, as the tumbling fall of oil continues to provide significant downward pressure on prices. The fall in oil is also going to boost growth in the UK, as the fall in North Sea revenues is vastly offset by greater consumer purchasing power. The club has revised its growth forecast up by 0.5% to 2.9% for 2015. They expect real household income to rise by 3.7% on average and house price growth to slow to 7% from the 10%+ we saw in 2014.
Overnight we’ve seen a huge move in the Shanghai stock market. The index as a whole is lower by 8% after the Chinese regulator banned three large financial brokerages for allowing illegal margin trading activity. The move is seen as a wider clampdown on speculative trading within China, forcing a massive sell-off in stocks. Add to this news that house prices in China fell in 65 Cities in December and it wasn’t the greatest of starts to their week.
Looking ahead to this week. The ECB will be the main focus, on Thursday, as we’ve already said. Before we get there though, we’ve got the Bank of England’s minutes on Wednesday, followed by unemployment numbers and weekly earnings. We’ve got interest rate announcements from the Bank of Japan and the Bank of Canada. PMI data from Europe isn’t out until Friday, but that will be heavily in focus, regardless of what the ECB do. Today is Martin Luther King day, a US market holiday, so we expect a generally quieter afternoon than those of last week… Phew!