Swiss dump franc cap, cut rates; Bond yields fall, gold price rises; OPEC cuts demand forecast; Chinese shadow banking comeback; TWI=80.11

Swiss dump franc cap, cut rates; Bond yields fall, gold price rises; OPEC cuts demand forecast; Chinese shadow banking comeback; TWI=80.11

Here's our summary of the key overnight news.

The Swiss National Bank stunned financial markets by dumping a three-year-old cap on the Swiss franc, sending its currency soaring against the euro and Swiss shares plunging given more than 40 percent of Swiss exports go to the eurozone. Reuters reports that just a few days ago, Swiss National Bank officials described the 1.20 francs per euro cap, introduced in 2011 at the height of the eurozone sovereign debt crisis to fend off deflation and recession, as a policy cornerstone.

Thus the policy U-turn saw the franc rise almost 30% against the euro. The move comes just a week before the European Central Bank is expected to roll out a quantitative easing (QE) bond-buying, or money printing, programme to counter deflationary pressures. Thus there's speculation the QE programme will be so big the Swiss central bank may have struggled to defend the cap.

The Swiss National Bank also pushed its key interest rate deeper into negative territory, lowering it to  minus 0.75% from  minus 0.25%.

Oil prices fell once again as the Organisation of Petroleum Exporting Countries (OPEC) released a forecast for weaker demand, and US oil production reached its highest point since before 1983. Demand for oil from OECD countries will average 28.8 million barrels a day, which is about 100,000 barrels less than forecast just last month, OPEC said in a monthly report. Meanwhile, according to the US Energy Information Administration, US oil output rose to 9.19 million barrels a day last week.

West Texas crude was down 1.1% at US$47.97 a barrel, and Brent crude for February settlement fell 12 cents to US$48.57 a barrel. IMF Managing Director Christine Lagarde says the big fall in oil prices and a stronger US economy will probably not be enough to improve the outlook for global economic growth this year.

US shares fell for the fifth straight day with banks and Apple lower. Shares in Bank of America and Citigroup were down after both reported a drop in fourth-quarter profit as revenue from fixed-income trading fell and costs from misconduct mounted.

Meanwhile, US producer prices recorded their biggest fall in more than three years in December. The US Labor Department said its producer price index fell 0.3%, the biggest drop since October 2011. It fell 0.2% in November.

The yield on 10-year US Treasuries fell nine basis points to 1.77%, down for a fifth straight day. And 30-year yields dropped eight basis points to 2.39%, reaching a lower level than the record low set just yesterday. And in European bonds news, Germany's two-year yield fell to a record low of minus 0.154%, and the country’s five-year rate dropped to a record low of minus 0.053%. Negative yields mean investors buying the securities will get back less when the debt matures than what they paid for the bonds.

Meanwhile, the gold price continued to rally helped by the Swiss. Gold futures for February delivery surged 2.5% to US$1,264.80 an ounce.

And in China Bloomberg reports the shadow banking industry staged a comeback in December with aggregate financing reaching 1.69 trillion yuan (US$273 billion), according to the People’s Bank of China. This was above the 1.2 trillion yuan median estimate in a Bloomberg survey.

The New Zealand dollar is at about US78.19 cents this morning, about AU95.09c, and the Trade Weighted Index (TWI) is at 80.11. Against the euro the NZ dollar reached fresh all time highs above 67.40 euro cents.

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8 Comments

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Highlight new comments in the last hr(s).

Don't be forgetting US unemployment claims jumped 'unexpectedly' to a 6 month high and the US Philly Fed manufacturing index collapsed ' unexpectedly' from 20.3 to a 9 month low of 6.3.
Early signs of the drag effect of the bursting of the shale oil ponzi? You betchya.....
Ooops I forgot, on interest.co.nz the only effects of the fall in the oil price are good effects.....

Error sorry

"Casualties From Swiss Shock Spread From New York to New Zealand," Bloomberg says - http://www.bloomberg.com/news/2015-01-15/new-zealand-currency-broker-clo...
And - http://www.excelmarkets.com/
"Global Brokers NZ Ltd. STP's 100% of order flow and has sustained a total loss of operating capital. GBL can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business. Losses incurred on trades that could not be exited due to illiquidity were losses incurred directly with the liquidity provider and we do not have the ability to reimburse those. Please note the interbank market for francs was illiquid for hours after the event and no traders with an open franc position were able to close it for a significant period of time, at any broker."

Global Markets is owned by a number of companies registered in the British Virgin Islands tax haven.
Companies Office records show its managing director David Johnson is resident in Ireland.
 
http://www.stuff.co.nz/business/industries/65125923/global-brokers-nz-go...

Not just retail, big banks lost too. Citi and Goldman lost a drop of blood. Hopefully none of our banks were exposed. I sure wouldn't want to pay for the banks' proprietary trade losses with my own account through OBR...

That will explain why the EUR trades had problems on FXCM last couple of nights and why couldn't login for about 15 hair-raising minutes.

If those brokers lost big then, considering FX transactions are zero-sum, .... where did the money go?   Was some of into USD as that started a solid rise a couple days before the swiss event.

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