Markets under siege of policy surprises?

The reluctance of the policy makers to be cent per cent transparent costs someone in the market. It is a zero sum game so some gain at the others expense. A spate of recent surprises have affected the market; examples:

1. The rapid transformation of the USA into  a resource based economy and the consequential fall in oil prices;
2. The repeated insistence of Saudi Arabia that they do not care if oil prices fall but will maintain production; 
3. The Swiss National Bank's famous Swiss Franc de-pegging;
4. Mario Draghi's ECB QE being larger than anticipated;
5. The 25 bp rate cut by the Bank of Canada
6. The 25 bp rate cut by the Reserve Bank of India ahead of schedule;
7. The Danish Central bank intervening by rate cut to weaken currency;
8. A 50 bp cut by Egyptian Central bank.  

Markets are places that arbitrage on surprises.


Without any risk or responsibility 

Oil at $ 40; euro at $ 1 ??? Fear is the key?

The Central bankers of Switzerland have no remorse to its irreverent reversal of policy which saw a trading strangle virtually. Fear seems to be stalking SNB corridors ...The biggest welcome for SNB's decision to cut the strings with the euro must come from the exporters in Europe (read German: BMW, Benz, Volkswagen...) .

Euro now certainly looks south and those who have not so far unwound the euro positions may do that soon enough so that they escape a  further fall. That should see a flight into safe havens.  Dealers will cut losses. A falling currency will fall quite a bit in the current scenario. Banks need time to take stock of CHF funding positions of client.


Fear of Rolex/ Omega being hit  should not worry the Swiss bourses as these are luxury brands ; the wealthy buy more of more expensive stuff; luxury brands thrive on higher prices; luxury brands are inelastic to price fluctuations.  Tourism might see a drop.

Views expressed are without any risk or responsibility.

Why the SNB move has smothered the RBI move...

By knocking off the peg to the Euro, SNB sent shivers down trader spines...  and RBI just saw its small token move of .25 bp cut knocked off headlines. The token move has been negated by the substantive, decisive Swiss National bank move. ( That SNB move was a great lesson in central banking and in management)

The Indian corporates are not decoupled from the global market  and the impact on Indian exporters is going to be substantial There will be red lines all over exporter balance sheets if the volatility in currency markets does not stop and this is not on the radar at all.

With the fall in euro and dollar and remergence of the Swiss Franc as a safe haven , and with gold back in the reckoning (for whatever little time frame) , there is volatility and exporters are likely to be adversely affected. If any Indian corporate has borrowed in CHF, then that is a serious funding case. Banks may see adverse impact too as their clients falter; NPAs are likely to be aggravated as clients wobble holding invoices which have lesser value...
 A  day for sellers on Mumbai Stocks, it looks like.

Views expressed without risk or responsibility 

The Swiss Franc dark chocolate...

CHF appreciated a neat 30 %  to a 0.85 per euro after that unexpected shocker of a Swiss national Bank move.

On to a market that was just waiting to whine, that was the  flogging of a 100 whiplashes.

There was a reiteration of profitability interests rather than global concerns.  The restoration of CHF as a global safe haven may be about the one benefit that might ensue. The tourism and export businesses in Switzerland will suffer in this sudden rise. Asian travelers to Europe might defer!!!

Most worrying is the impact on CHF designated borrowings. Those who have taken loans in Swiss Francs (at the very low interest rates) will be knocked off at this unexpected appreciation of the currency and the NPAs of banks across the globe will take a big hit. Swiss Franc funding for repayment will be prohibitively expense. Bank shares in Europe and Asia may be under pressure throughout the day until  a clear picture emerges. 

Views expressed without risk or responsibility.