HONG KONG/WELLINGTON (Jan 16): Asian shares dropped with U.S. index futures while sovereign bonds rallied and gold traded near a four-month high as the market turmoil sparked by Switzerland abandoning the franc’s cap extended into a second day.
The MSCI Asia Pacific Index fell 0.8 percent by 11:08 a.m. in Tokyo, while Standard & Poor’s 500 Index futures slid 0.8 percent, following a five-day drop. The franc was near parity with the euro, after trading at 1.20096 per euro immediately before the Swiss National Bank announcement. Yields on 10-year Australian and Japanese debt declined to records. Copper is heading for its biggest weekly loss in three years, while oil is set for the longest weekly losing streak since 1986.
The SNB move sparked mayhem on trading floors and increased speculation that the European Central Bank may unveil a broader program of stimulus when it meets next week. FXCM Inc., the third-largest currency broker for retail clients, said it may have breached some capital requirements after clients got caught out by the franc surge, while a New Zealand currency brokerage said it would close due to losses. The euro area reports final December consumer prices figures today.
“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, buying gold to hedge against the volatility which is going to continue.”
Gold was little changed at $1,261.28 an ounce on the spot market today, after jumping 2.8 percent last session in its steepest one-day climb since Dec. 1. U.S. 10-year Treasuries fell, with the yield climbing two basis points, or 0.02 percentage point, to 1.73. The rate fell for a fifth straight day yesterday and touched 1.70 percent, the lowest since May 2013.
Australia’s 10-year notes paid 2.54 percent after the yield dropped to a record 2.49 percent, below the central bank’s official cash rate for the first time since 2012. The yield on Japanese government notes due in a decade fell to as low as 0.225 percent, also the lowest ever.
Japan’s Topix index fell 1.8 percent, putting it on track for a 2.1 percent drop in the week. The Kospi index in Seoul retreated 1.2 percent. Hong Kong’s Hang Seng Index slid 0.6 percent and the Hang Seng China Enterprises Index was 0.7 percent lower. The Swiss Market Index slumped 8.7 percent Thursday, its biggest one-day drop since 1989.
The SNB also deepened negative deposit rates, underscoring Europe’s divergence with the U.S., where the Federal Reserve is mulling rate rises.
The franc’s surge versus the euro ranked as one of the biggest moves among major currencies since the collapse of the Bretton Woods system in 1971. The Swiss currency reached 85.172 centimes per euro last session, its strongest level since the euro’s 1999 debut and climbed against all of its major and emerging-market counterparts.
FXCM, a New York-based company that offers foreign exchange trading services over the Internet, said in a statement clients suffered significant losses that “generated negative equity balances owed to FXCM of approximately $225 million.”
Auckland-based Global Brokers NZ Ltd. said in a statement on its website that the majority of clients were on the “losing side” of the franc position, suffering greater losses than their account equity. Volatility on the franc soared to a more than one-year high last session.
The 19-nation euro was little changed at $1.1633 after falling 1.3 percent Thursday, and is headed for a fifth straight weekly drop, down 1.9 percent versus the greenback. The euro bought 99.379 Swiss centimes.