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[ariane] 12/8/2011 06:38

Financial Crisis

Desperate Swiss eye euro peg to repel safe-haven flood
Switzerland is mulling drastic measures to fend off safe-haven flows from Euroland and stop the relentless rise of the Swiss franc crippling large parts of the country's economic base.

Exchange rates for the Euro, UK pound and US dollar against the Swiss franc over three years. By Ambrose Evans-Pritchard
6:03PM BST 11 Aug 2011
31 Comments
The franc retreated against the euro in a wild-one day move on Thursday after top officials at the Swiss National Bank (SNB) floated ideas for a temporary euro peg, a once unthinkable move.

"Nothing is excluded," said Jean-Pierre Danthine, a SNB board member. "The situation is extremely complex and difficult. There is no magic wand."

The Swiss franc has moved with gold over recent weeks, acting as a magnet for capital flight from the discredited debt currencies of West. The SNB said the franc is "massively overvalued" and has moved into dangerous territory over the past month.

The hotel and restaurant lobby GastroSuisse said the 240,000 strong tourist sector was in an "extremely precarious" state, while the machine tool industry risks major lay-offs and loss of investment to foreign sites.

The SNB has already flooded the banking system with SwFr80bn (£65bn), a vast sum for a country of less than 8m people. This was overpowered by a wall of money on Wednesday after contagion hit French banks and the US Federal Reserve pledged to hold rates near zero until mid-2013.

The SNB has since gone further, hinting at unlimited liquidity through swap transactions. Short-term rates have fallen below zero, leading to "negative carry" to deter hedge funds, but this may not be enough.

Kurt Schiltknecht, the SNB's former chief economist, said every measure used to curb inflows in a similar crisis in 1978 proved a "failure", including negative rates.

Eventually the bank set a target against the Deutschmark (10pc above market levels) and pledged to buy foreign currency with printed francs for as long as it took. "It worked well. After some hesitation, the market became convinced," said Mr Schiltknecht. A euro peg would be similar.

Thomas Jordan, the SNB's vice-president, said a "temporary link with Europe's common currency" might be allowable under the bank's mandate so long as it did not compromise Switzerland's monetary independence.

Hans Redeker, currency chief at Morgan Stanley, said Swiss companies have been shielded so far by currency hedges taken out two years ago but these contracts are expiring. "They are running against the clock. The Swiss economy has been stable until now because exporters are still operating at the earlier exchange rate. There could be significant problems next year."

Denmark has avoided Switzerland's fate by pegging to the euro, though the model may be hard to replicate. "Nobody is speculating with the Danish krona. I think a euro peg could work if the SNB is willing to defend the level by creating as much liquidity as needed," said Mr Redeker.

The franc came within a whisker of parity against the euro this week before moving back to SwFr 1.08. It was trading above SwFr 1.65 to the euro before the credit crisis in 2008. Sterling has more than halved against the Swiss currency in just three years

[ariane] 11/8/2011 18:09

The franc weakened after Swiss Central Bank Vice President Thomas Jordan said a temporary franc peg is within the range of options that policy makers could use to stem the currency's record-breaking rally.

"Any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability," Jordan said in an interview with Tages-Anzeiger today, when asked about a general currency peg. Swiss National Bank spokesman Walter Meier confirmed the remarks. The franc weakened as much as 2.5 percent.

The comments highlight the scale of the crisis engulfing the Swiss economy as policy makers seek measures to fight off investors piling into the franc, a haven in times of crisis. While President Philipp Hildebrand has signaled the central bank is unwilling to give up its sovereignty, some economists have said the franc's surge toward euro parity is adding pressure on the SNB to consider a peg for the first time since the Bretton Woods currency system was abandoned in 1973.

"Relief on the franc is not expected by these comments," said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. "The market will probably only react to actions."

Surprise Cut
The franc traded at 1.0517 versus the euro at 12:53 p.m. in Zurich after rising as high as 1.0257 earlier today. It reached a record 1.0075 against the euro on Aug. 9. The currency was at 74.10 centimes versus the dollar.

The franc has gained 31 percent versus the euro over the past year, reflecting investor concern that the euro region's fiscal crisis may continue to worsen. While the SNB boosted liquidity on the money market and earlier this month unexpectedly trimmed borrowing costs to zero, the currency continued to appreciate, choking economic growth and exports.

"Normally, we would have argued this could never happen," said Ursina Kubli, an economist at Bank Sarasin in Zurich, commenting on a possible peg. "It would be a very drastic measure but now it's becoming more and more realistic."

Jordan didn't say whether the SNB is currently considering a currency peg. Hildebrand, 48, said earlier this month that "a fixed and permanent peg of the franc to the euro isn't compatible with our constitutional and legal mandate to conduct an independent monetary and exchange rate policy."

Independent Policy
"It's certainly not the easiest measure to introduce neither in political nor legal terms," SNB Governing Board member Jean-Pierre Danthine told Le Temps newspaper in an interview published today. The SNB's mandate is "to conduct an independent monetary policy."

With exports accounting for about half of gross domestic product, the Swiss economy is vulnerable to an appreciating franc. Nestle SA (NESN), the world's largest food company, based in Vevey, Switzerland, said yesterday the franc's strength stripped 14 percentage points off its first-half sales growth.

Bank Sarasin's Kubli said the franc's surge could prompt companies to shift production sites abroad to help protect earnings and avoid "repeated exchange-rate shocks."

"For a lot of exporters, it becomes impossible to remain competitive," she said. "People know that if there are any turbulences, the franc appreciates as a result. That could be enough of a reason for companies to leave."

'Close Watch'
The SNB said on Aug. 3 that policy makers are "keeping a close watch" on currency developments. The franc's surge "has accelerated sharply" over past weeks and the "outlook for the Swiss economy has deteriorated substantially," it said.

The central bank boosted the supply of liquidity to the money market yesterday, expanding banks' sight deposits to 120 billion francs ($163 billion) from 80 billion francs.

"We are able to increase liquidity even further," Jordan said. "We are also considering a range of other monetary-policy measures and we'll act as soon as we're convinced that it's the right time," he said, without elaborating.

Jordan joined the SNB in 1997 after a three-year post- doctoral research position at Harvard University, Massachusetts, U.S. In 2007, he joined the SNB board in 2007 and was appointed vice chairman in 2010.

Coordinated Effort
George Magnus, senior economic adviser at UBS AG in London, said he "can't see any merit" in a franc peg.

"Any form of pegging structure actually gives them obligations to intervene and perhaps even on a daily basis, and I'm not sure that's something they would want," he said. "It doesn't mean that the franc won't be subject to speculative pressure, which would still oblige them to intervene."

Jordan also said he considers the franc "massively overvalued" against both the dollar and the euro. The central bank ended attempts to weaken the franc through purchases of foreign currencies in mid-June 2010. The measure sparked a record loss of $21 billion last year.

Japan last week followed Switzerland in seeking to stem appreciating exchange rates, selling the yen and pledging to inject liquidity. The central bank acted alone in the market.

David Kohl, deputy chief economist at Julius Baer Group in Frankfurt, said Hildebrand could try and convince global counterparts to support a coordinated currency intervention.

"Hildebrand is very well connected," he said. "It's very difficult to intervene unilaterally. But if they managed to get other central banks on board, it would surprise markets and have a much bigger impact."

The SNB will hold its next quarterly meeting on Sept. 15.

To contact the reporters on this story: Klaus Wille in Zurich at [e-mail]; Paul Verschuur in Zurich at [e-mail]

To contact the editor responsible for this story: Craig Stirling at [e-mail]

[waldron] 11/8/2011 09:19

Swiss Franc Falls as SNB Sees Possible Euro Peg
QBy Klaus Wille and Paul Verschuur - Aug 11, 2011 9:13 AM GMT+0200 .
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Swiss National Bank Vice President Thomas Jordan Adrian Moser/Bloomberg
Swiss National Bank Vice President Thomas Jordan.

Swiss National Bank Vice President Thomas Jordan. Photographer: Adrian Moser/Bloomberg
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Swiss Franc Notes Chris Ratcliffe/Bloomberg
Swiss franc notes are arranged for a photograph in London, U.K..

Swiss franc notes are arranged for a photograph in London, U.K.. Photographer: Chris Ratcliffe/Bloomberg
.Swiss central bank Vice President Thomas Jordan said it would be possible to peg the franc to the euro for a limited period to help counter currency gains.

"Any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability," Jordan said in an interview with Tages-Anzeiger newspaper published today. SNB spokesman Walter Meier confirmed the remarks.

The Swiss franc has gained 31 percent versus the euro over the past year, reflecting investor concern that the euro region's fiscal crisis may continue to worsen. While the Swiss National Bank boosted liquidity on the money market and earlier this month trimmed borrowing costs to zero, the currency continued to appreciate, choking economic growth and exports.

The franc weakened against all 16 of its most traded peers and traded at 1.0398 versus the euro at 9:06 a.m. in Zurich. It reached a record 1.0075 on Aug. 9. Against the dollar, the currency traded at 72.83 centimes.

"We are able to increase liquidity even further," Jordan said. "We are also considering a range of other monetary policy measures and we'll act as soon as we're convinced that it's the right time," he said without elaborating.

Jordan also said he considers the franc "massively overvalued" against both the dollar and the euro.

To contact the reporters on this story: Klaus Wille in Zurich at [e-mail]; Paul Verschuur in Zurich at [e-mail]

To contact the editor responsible for this story: Craig Stirling at [e-mail]

[waldron] 10/8/2011 17:48

The Swiss central bank stepped up its fight to counter what it called a "massive overvaluation" of the currency by boosting liquidity. The franc dropped.

The Swiss National Bank will "significantly increase" the supply of liquidity to the money market and expand banks' sight deposits to 120 billion francs ($165 billion) from 80 billion francs. It will also conduct foreign-exchange swap transactions to create liquidity, a measure last used in 2008, it said in an e-mailed statement from Zurich today.

The franc has been pushed to records against the euro and the dollar, reflecting investor concern that the euro region's fiscal crisis may continue to worsen and the Standard & Poor decision to strip the U.S. of its AAA credit rating. While the SNB trimmed borrowing costs to zero on Aug. 3 and almost tripled sight deposits to 80 billion francs, the currency continued to appreciate, choking economic growth and exports.

"There is a chance that they will be successful in stabilizing the franc at its current level," said Marcus Hettinger, a foreign-exchange strategist at Credit Suisse Group AG in Zurich. If they don't, they may "resort to further measures like interventions."

The franc traded at 1.03241 versus the euro at 5:12 p.m. in Zurich. It reached a record 1.0075 yesterday, bringing its gain this year to 20 percent. Against the dollar, the currency was at 72.82 centimes, down from an all-time high of 70.71 centimes yesterday.

'Massive Overvaluation'
SNB Vice President Thomas Jordan said in an interview with Weltwoche magazine published today that policy makers are assessing "a whole range of measures" to counter further franc gains if needed. He declined to elaborate.

The franc dropped against all of its 16 major peers tracked by Bloomberg after today's decision. It has jumped 23 percent year-to-date against a basket of nine developed-market currencies, according to the Bloomberg Correlation-Weighted Currency Indexes.

With exports accounting for about half of gross domestic product, the Swiss economy is vulnerable to an appreciating franc. Nestle SA (NESN), the world's largest food company based in Vevey, Switzerland, said today the franc's strength stripped 14 percentage points off its first-half sales growth.

'Safe-Haven Trades'
Peter Rosenstreich, Geneva-based chief currency analyst at Swissquote Bank SA, said today's decision is "probably not going to be enough" to stop the franc from appreciating.

"At some point we are going to see an intervention by the SNB, just because they can't handle this rate of appreciation," he said. "I'm not sure that even if they intervene, the will for safe-haven trades dissipates."

While the franc's ascent is making exports less competitive, it's also increasing deflation risks as the economy cools. Consumer prices rose 0.5 percent in July from a year earlier after increasing an annual 0.6 percent in June.

"The massive overvaluation of the franc poses a threat to the development of the economy in Switzerland and has further increased the downside risks to price stability," the SNB said. "The SNB is keeping a close watch on developments on the foreign-exchange market and on financial markets. If necessary, it will take further measures against the strength of the franc."

The SNB will hold its next quarterly rate assessment on Sept. 15 in Zurich.

To contact the reporter on this story: Simone Meier in Zurich at [e-mail]

To contact the editor responsible for this story: Craig Stirling at [e-mail]

[jadeticl] 07/8/2011 19:53

We have all seen where this company's share price can go to when the times are good. Even now when times are anything but good the company has performed creditably, such that one can see the gain to be made at some point in the future. The JV is an additional bonus. These share are cheap on an historic basis. Does anyone see them going under before the good times return? If not then now (or soon) might be a good time to buy. At 240p I was not tempted to buy more, but now I am considering.

I have a lot of money tied up in SFR (even at these prices). A couple of years ago I could take the capital drop when the divi was good. Now divi is modest with no hope of a rise soon. So I hold for the recovery. I am confident it will arrive although not as soon as we hoped.

[mafia music] 04/8/2011 09:11

why hold them figures will pull down the SP

[grupo guitarlumber] 31/7/2011 17:02

..Swiss central bank urged to curb franc's rise

By Fabrice Coffrini | AFP – 4 hours ago
....tweet6EmailPrint......Related Content.
..
Enlarge Photo.A hand moves 100 Swiss francs notes with 1,000 Swiss francs notes as background. ...
....The head of watchmaking firm Swatch on Sunday urged Switzerland's central bank to take measures to curb the appreciation of the Swiss franc, now at record heights against the euro and dollar.

"We must defend ourselves," Swatch's Director General Nick Hayek told the Sonntagszeitung newspaper in an interview published Sunday.

The National Bank of Switzerland (BNS) "must set an objective rate for the franc, for example a 1.35 (euro, $2.00) and defend it. This would at least be a clear signal" to the markets," Hayek added.

He rejected claims that franc's current record-high standing against the euro and dollar are due to the strength of the Swiss economy, which has attracted investors looking for a "safe haven" amid an intensifying eurozone debt crisis.

Rather, he said, the high rates are "a consequence of speculation."

While Swatch on Thursday announced a net 24.5 percent rise in profits, Hayek said that trend would not last if the franc continued to soar.

"If the franc remains at these high levels high against the dollar and the euro, it will not be easy to maintain our profitability at current levels," Hayek said.

The continued rise of the franc "will not only have very, very heavy consequences for us, but for all Swiss businesses and for tourism," he said.

The franc hit record highs this weekend, brought on by the debt crises in Europe and the US, where lawmakers are working through the weekend to forge a compromise on raising the country's borrowing limit.

On Friday evening, Swiss currency was trading at 1.1313 francs per euro, and 0.7852 against the dollar.

The BNS central bank had until 2010 intervened in exchange markets to limit the rise of the franc, but has since aborted that strategy after suffering major losses.
...

[mafia music] 31/7/2011 07:05

23 August 2011
Interim Results

so how you expecting those to go...are you expecting some nice figures?

[grupo guitarlumber] 26/7/2011 13:01

Swiss franc - a victim of its own success

[alter ego] 26/7/2011 08:58

easy to find out if you can make the effort to look

www.watsonsteel.co.uk/financial_5.aspx

[mafia music] 26/7/2011 08:52

when did you say the next results are expected out

[jonwig] 25/7/2011 19:01

Mafia - my breakeven price is pretty irrelevant, as I've been in and out of this a number of times.

Whilst your 180p looks attractive, I'd rather wait to value on the basis of the next results.

[mafia music] 25/7/2011 18:12

whats your average price in SFR? thanks for that informed post Jon much appreciated. Its a company which has been masively effected by the crash but its a recovery play mainly. Long term investment.

just tryin to way up the pro and cons risk involved and what potential it has.

which the current profit its fairly expensive. i dont think i would like to pay any more than 180p. Not sure if yuo have the same views on that

[jonwig] 21/7/2011 19:05

Mafia - it's unclear at the moment whether this will affect SFR at all, though in the UK the pot of big projects isn't growing, and anyone who can counterbid will either take work from SFR or force SFR to accept lower margins.

SFR can, as I understand it, buy their steel more cheaply than the competition, which helps, of course - as does their expertise in the large projects ... provided they are retaining their skilled staff.

Of course, the UK's growth rate is being forecast down on a regular basis, which doesn't help. As for India, the H1 results will be out in about 5 weeks, so things should be clearer then.

Recent forecasts are for eps of 8 - 8.3p this year and 12 - 15.4p next. So, on the face of it, not at all cheap. Holders are here for management skills and long-term prospects for India.

I'm away for a while, and I don't think it would be right to contact the company before the results, but I may do afterwards if there are still issues to think about.

[mafia music] 21/7/2011 16:40

how much affect does that news on on sfr and could you explain a bit more about how it affects SFR you might be able to point out some of the obvious which i have missed out

[gswredland] 15/7/2011 18:48

Thanks for the info Jonwig.

[jonwig] 15/7/2011 18:02

Mafia - you might get it ... I think there might be a real threat to SFR's edge after the news in post #3171.

[mafia music] 15/7/2011 17:55

John dodds has a total of 10,000 shares which cost him around 22grand

that seems quite encouraging considering thats the only bundle of shares he has .

im looking for around 180p

[waldron] 15/7/2011 07:44

Strong franc may cause longer work hours

Image Caption: Thurgau firm Stadler Rail says order books are filling up but exchange rate fluctuations are trimming margins (Keystone)Related Stories
"Sober" Swiss franc strategy praised
Strong franc threatens homespun manufacturing
Firms warn worst franc effects "yet to come"
by Simon Bradley, swissinfo.ch


--------------------------------------------------------------------------------


If the eurozone crisis drags on firms' tactics to cope with a strong Swiss franc like longer work hours or lower pay may become more common, say experts.
Swiss firms are searching for creative solutions to deal with a strong franc which has gained 25 per cent in value against the euro and the dollar over the past four years.



Lonza, the Basel-based chemical and biotechnology company, which on Monday agreed to buy Arch Chemicals in the United States for $1.2 billion (SFr1 billion), hit the headlines a week ago when it announced a decision, reached jointly with unions, to extend work hours due to pressures from the strong franc.

The working week for the 3,000 staff at its Visp plant will be increased from 41 to 42.5 hours for 18 months.

According to Stefan Borgas, Lonza's chief executive, the firm has lost 20 per cent of sales in the past 12 months through currency factors and competitiveness has suffered dramatically.

Swiss economist Beat Kappeler welcomed the fact that unions and employers had managed to hammer out a deal, which he said "bodes well for the future".

He told swissinfo.ch that longer work hour agreements like that of Lonza, "may become an increasingly common feature" in Switzerland if the eurozone crisis continues.

"As the EU is Switzerland's biggest trading partner I can also foresee quite significant pressure on nominal salaries," said Kappeler.

Collective bargaining agreements only exist in 40 per cent of Swiss firms, so there was likely to be plenty of "individual flexibility" over working arrangements, he added, especially in the service sector.



No miracles
In an article in the NZZ am Sonntag newspaper, Valentin Vogt, president of the Swiss Employers' Union, said there was no "miracle solution" to deal with the strong franc.

He advised struggling firms to extend work hours or reduce salaries as two possible "emergency measures".

"For employees it's better to work more for a short time rather than to lose your job," he told the Sunday paper.

But unions are less enthusiastic. Jean-Christophe Schwab, central secretary with the Swiss Federation of Trade Unions, told Swiss national radio that 10,000 jobs could be lost due to the overvalued franc.

"The government is doing absolutely nothing to counter the strong franc, while jobs are being threatened, people's purchasing power is being eroded and more and more companies are following Lonza's example," warned Schwab, who described the lowering of salaries and longer work hours as "illegal measures".

Kurt Regotz, president of the inter-professional union Syna, which helped negotiate the accord, said Lonza staff in Visp "were not very enthusiastic about the deal".

But he said the union was closely following the movement of the Swiss franc and if it dropped in value it had the right to change or stop the accord.

In the event the Swiss franc continued to gain in value, Regotz felt salaries were unlikely to be next on the chopping block.

"The issue is too hot and the negative impact would be too strong," he told swissinfo.ch.

Rudolf Minsch, chief economist with the Swiss Business Federation (economiesuisse), insisted that these kind of emergency business measures were "not a general phenomenon".

"But some firms are taking into account all possible measures" to help survive in the long run, he noted.



Struggling policymakers
Swiss policymakers have been struggling to deal with a strong franc. Swiss Economics Minister Johann Schneider Ammann describes the strong franc as an "enormous challenge" and in the latest edition of the Sonntag newspaper he admitted the government had "no magic weapon" to deal with it.

In a separate interview in the same paper Swiss National Bank Chairman Philipp Hildebrand said there was currently no reason to spring into action to try to counter the franc's rise as price stability was not threatened. But he said he was watching developments with great concern especially the effects on the economy as a whole.

Experts agree that the authorities are left with few tricks up their sleeve as the economy loses momentum.

"What I fear is that neither Schneider Ammann, nor the Swiss National Bank, really know what the solution is," said Regotz.

Minsch agreed: "There is close to no possibility to intervene without causing serious harm to the economy in the long run. The economy has to fight the problem within its competences, minimize costs and stay competitive on world markets."



Simon Bradley, swissinfo.ch

[jonwig] 15/7/2011 07:35

A new joint venture between Bourne Steel and Billington Structures is now on the hunt for steelwork packages on London high-rise jobs worth more than £8m.