While you were sleeping: Swiss central bank shock

Swiss equities plunged after a surprise decision by the Swiss National Bank to abandon its effort to check the continuing appreciation of the franc against the euro, days after recommitting to the currency's defence.

The Swiss Market Index plunged 8.7 percent after the SNB ended a three-year policy that was aimed at safeguarding the country from the effects of the euro-zone government debt crisis, and the resulting flight to safety into the Swiss franc. Whenever the Swiss franc approached 1.20 per euro, the Swiss central bank intervened to prevent the country's currency from strengthening further.

The shock decision boosted the franc as much as 41 percent to 85.17 centimes per euro, the strongest level on record, according to data compiled by Bloomberg. It was trading at about 1.04 euros at midday in New York.

Next week the European Central Bank is widely expected to bolster its attempts to stoke the euro-zone's languid economy by starting a sovereign debt purchase plan.

"The decision has been a surprise for markets – you can't do it in any other way," SNB President Thomas Jordan told reporters in Zurich. "We came to conclusion that it's not a sustainable policy."

Many disagreed.

"It's amazing that such a stoic central bank could end up abandoning such a long held policy with such short shrift," George Buckley, an economist at Deutsche Bank in London, told Bloomberg News. "I thought we were out of the situation where central banks surprise so significantly as this."

"In my opinion, this damages confidence in the Swiss National Bank that has always been saying it can keep up the minimum exchange rate," Alessandro Bee, economist at Swiss bank Sarasin, told Reuters. "I see big risks in this."

The Europe Stoxx 50 Index gained 2.2 percent from the previous close. The UK's FTSE 100 Index added 1.7 percent, Germany's DAX Index rallied 2.2 percent, while France's CAC 40 Index climbed 2.4 percent.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.48 percent, the Standard & Poor's 500 Index slid 0.3 percent, while the Nasdaq Composite Index dropped 1.38 percent.

Declines in shares of JPMorgan Chase and those of Caterpillar, down 4 percent and 1.9 percent respectively, led the Dow lower.

Shares of Bank of America and those of Citigroup also declined, down 3.8 percent and 3.4 percent respectively, after the banks posted disappointing quarterly earnings.

Like JPMorgan Chase earlier this week, Bank of America and Citigroup also reported larger-than-expected drops in fixed-income revenue.

"We're all debating on this fixed-income revenue issue: Is this a secular decline or more a cyclical decline?" Gerard Cassidy, an analyst at RBC Capital Markets, told Bloomberg. "I think we're in for some just tough numbers in fixed-income trading on a secular basis as we go forward."

Commodities markets were relatively stable overnight with oil modestly lower and copper, at least for the moment, rebounding from the previous day's plunge.

(BusinessDesk)