Europe stocks soar, Swiss shares slump as SNB unchains franc

A screen at the Swiss Stock Exchange shows the evolution of the euro against the Swiss franc in Zurich yesterday. The Swiss franc jumped 29% against euro after the central bank said it was discontinuing the minimum exchange rate of 1.20 francs per euro after three years.AFP/LondonEurope’s main stock markets shot up yesterday but Swiss equities sank after Switzerland’s central bank scrapped a policy to artificially hold down the value of its currency against the euro, sending the franc soaring. The Swiss franc, seen as a safe haven investment, jumped 29% against the European single currency after the central bank said it was discontinuing the minimum exchange rate of 1.20 francs per euro after three years. The franc, which bought a euro for 1.2010 late on Wednesday, reached 0.8517 yesterday. That was a record high and the first time that the franc had gone beyond parity with the euro since the birth of the single currency in 1999. It later lost steam to trade at 1.0421 francs against the euro. With Switzerland’s economy heavily dependent on exports, investors feared that a strong franc could dent earnings at Swiss companies and dumped their stocks, sending the Swiss Market Index tumbling. It ended the day down 8.7% to 8,400.61 points. The Swiss watchmaking giant was among top losers on the stock market, with its shares tumbling 16.4% while those of the world’s second largest luxury group Richemont slumped 15.5%. European stocks initially slumped on the Swiss decision, but eventually rallied. London’s benchmark FTSE 100 index ended the day up 1.73% at 6,498.78 points, Frankfurt’s DAX 30 rose 2.20% to 10,032.61 points and the CAC 40 in Paris gained 2.37% to 4,323.20. There are mounting expectations the European Central Bank will launch at its next policy meeting on January 22 a quantitative easing (QE) programme under which it buys large amounts of government bonds.Such a programme will lead to a weakening of the euro, and would have made it impossible for the SNB to hold down the value of the franc. Wall Street stocks dropped yesterday following disappointing US bank earnings. The Dow Jones Industrial Average shed 0.40% to stand at 17,356.69 points in midday trading. The S&P 500 index lost 0.55% to 2,000.12, while the tech-rich Nasdaq Composite Index lost 0.83% to 4,600.86. US bank earnings continued to disappoint, with Bank of America results dropping 11.3% and Citigroup profits sinking 86% on a hefty legal charge. Bank of America shares fell 3.3%, while Citi shares dropped 2.4%. Meanwhile the euro fell to an 11-year low against the dollar yesterday, with the single currency under pressure from mounting prospects of fresh stimulus from the ECB next week. The euro touched $1.1575, but recovered to $1.1608 in late trading, which was still down from $1.1782 on Wednesday.