European bonds rise as Swiss stocks extend losses on SNB shock

Sovereign bonds rallied across Europe and Swiss stocks tumbled as the effects from Switzerland abandoning the franc’s cap extended into a second day. The country’s currency weakened after Thursday’s record surge and U.S. equity-index futures fell.

Yields on 10-year German notes dropped two basis points to 0.45 percent at 7:25 a.m. in New York and rates for gilts lost three basis points to 1.48 percent. The Swiss Market Index retreated 4.6 percent, following Thursday’s biggest decline since 1989. The franc weakened 3.4 percent to 1.0088 per euro after soaring 23 percent yesterday. The Stoxx Europe 600 Index added less than 0.1 percent, while Standard & Poor’s 500 Index futures slid 0.5 percent, signaling the gauge will fall for a sixth day. Oil rose 2.7 percent to $47.51 a barrel in New York.

The Swiss National Bank’s move sparked mayhem on trading floors and increased speculation that the European Central Bank will unveil a broader stimulus when it meets next week. FXCM Inc. tumbled more than 70 percent in early New York trading after the largest U.S. retail foreign-exchange brokerage said it may have breached some capital requirements after clients got caught out by the franc surge. Goldman Sachs Group Inc. is among companies set to report earnings on Friday.

“The SNB caught almost everyone by surprise and it’s creating unease and anxiety in markets,” Nader Naeimi, who helps manage about $125 billion as Sydney-based head of dynamic asset allocation at AMP Capital Investors, said by phone. “The strategy is capital preservation for now.”

ECB Outlook

Italy’s 10-year yield reached a record-low 1.671 percent. Switzerland’s 10-year yield turned negative for the first time, reaching minus 0.031 percent. A negative yield means investors buying the securities would receive less back than they paid if they held them to maturity.

Greece’s three-year note yield jumped 150 basis points to 11.69 percent. Alpha Bank AE submitted a request to the Bank of Greece for cash from the Emergency Liquidity Assistance system.

ECB Executive Board member Benoit Coeure said in interview with the Irish Times that there is no decision on quantitative easing yet though “the only thing I can say is that, for it to be efficient, it would have to be big.”

The euro weakened 0.5 percent to $1.1589 and the dollar strengthened 0.5 percent versus the yen. Treasuries fell, with the 10-year yield rising three basis points to 1.75 percent.

The cost of insuring European debt increased, with the Markit iTraxx Senior Financial Index of credit-default swaps on banks and insurers rising two basis points to 69 basis points, data compiled by Bloomberg show.

High Volume

Three shares declined for every two that advanced in the Stoxx 600, with trading volumes 33 percent higher than the 30- day average, according to data compiled by Bloomberg. Volumes on the SMI were four times greater than average, the data show.

“We’ve had so much to digest so early in the year, it’s very difficult to pinpoint a direction in the markets,” said Teis Knuthsen, chief investment officer at Saxo Bank A/S’s private-banking unit in Hellerup, Denmark. “It will take a long time to absorb all this before we can step back and really focus on fundamentals. There’s definitely speculation that the SNB did this in advance of expectations for the ECB to announce QE next week.”

UBS Group AG slid 5 percent, extending Thursday’s 12 percent tumble. Credit Suisse Group AG slid 6 percent, following an 11 percent drop on Thursday.

Nestle SA, Novartis AG and Roche Holding AG — the biggest shares on the Stoxx 600 — dropped at least 3.9 percent. Stocks of Swiss exporters rebounded today, while watchmakers Cie. Financiere Richemont SA and Swatch Group AG extended Thursday’s losses.

FXCM Tumbles

BP Plc gained after a U.S. judge ruled that the company faces a $13.7 billion fine for the 2010 Gulf of Mexico oil spill, about a quarter less than the U.S. had calculated.

Intel Corp. fell after the world’s largest chipmaker forecast first-quarter sales that may fall short of analysts’ estimates.

The S&P 500 lost 0.9 percent, leaving it 2.6 percent lower this year. A report on Friday may show consumer confidence improved this month, while industrial production decreased in December, according to economists’ forecasts in Bloomberg surveys.

The MSCI Emerging Markets Index fell 0.4 percent, taking its loss this week to 0.6 percent, ending four weeks of gains. South Korea’s won and the Taiwan dollar rose 0.6 percent against the dollar, while the Polish zloty slipped 0.3 percent versus the euro.

China Rally

The Shanghai Composite Index rallied 1.3 percent. The gauge has advanced 2.6 percent this week, a 10th week of gains that’s the longest winning streak since May 2007, after credit growth expanded and speculation grew the central bank will cut reserve- requirement ratios. The Hang Seng China Enterprises Index slipped 0.9 percent, leaving it little changed for the week.

South Korea’s Kospi sank 1.4 percent as the won’s gain to a two-month high dragged exporters including Hyundai Motor Co. and Samsung Electronics Co. lower.

West Texas Intermediate crude’s gain trimmed this week’s decline to 2.6 percent. The contract slid for an eighth week, the longest run of losses since 1986, as a global supply glut shows little sign of abating. Brent crude climbed 3.8 percent to $49.48 in London, leaving it 1.2 percent lower over five days.

Oil Output

Non-OPEC oil producers will increase output this year at a slower rate than previously forecast, aiding a recovery in crude prices, the International Energy Agency said in a report on Friday. The Paris-based adviser lowered its non-OPEC supply growth estimate in the first cut since the 2015 forecast was introduced in July.

Oil prices have collapsed almost 60 percent from last year’s peak, as the Organization of Petroleum Exporting Countries resolved to defend market share against the fastest U.S. production in more than three decades.

Copper for three-month delivery on the London Metal Exchange rose 1 percent, paring this week’s loss to 6.7 percent, the biggest such retreat since September 2011.

[Bloomberg]