First increase since 2015
The Swiss interest rate hammer is putting equity markets under pressure
The Swiss National Bank unexpectedly raises interest rates. This is bad for stock markets in Europe. The Dax slipped to a three-month low, and online fashion retailer Asos was particularly impressed.
In the fight against inflation, central banks are pulling out the crowbar and raising fears of a recession on the stock exchange. After the US Federal Reserve, Switzerland also pulled the rope in the face of rising inflation and raised key interest rates for the first time in more than seven years of persistent monetary policy. The Bank of England may also follow suit later in the day.
Equity investors fled: the Dax slipped 2.8% in the morning to a three-month low of 13,110 points, the EuroStoxx50 lost 2.5% to 3,444 points. Government bonds were also sold off, while yields soared.
The astonishing increase in interest rates in Switzerland by 50 basis points caused a sensation in the markets. The decision by the Swiss National Bank (SNB) shows that there is currently only one direction for interest rates, said strategist Chris Scicluna of Daiwa Capital Markets. “It just suggests that virtually all major central banks are pulling in the same direction.” The Fed had raised its benchmark interest rate by 0.75 percentage points, the highest since 1994. At the same time, it reaffirmed its inflation target of two percent. “The Fed pulled out the crowbar, the economy is secondary,” NordLB strategists wrote.
The Swiss franc appreciates considerably
The Swiss equity index fell 2.8 percent after the SNB’s decision. The Swiss franc appreciated significantly. The dollar lost 1.1% against the national currency at 0.9832 francs, the euro was 1.8% weaker at 1.020 francs. Yields increased significantly on the bond markets. Yields on 10-year Bunds increased by 13 basis points to 1.79%, marking the highest level since 2014. Italian 10-year bonds returned 9 basis points more to over 4%.
The move by the Swiss makes it clear once again how far behind the European Central Bank (ECB) is, said economist Thomas Gitzel of VP Bank. “The guardians of the European currency are currently proceeding slowly and are therefore risking the credibility of their monetary policy.” The euro fell half a percentage point to $ 1.0388. The European Central Bank announced a new monetary policy tool in response to the sharp rise in Southern European debt yields. The spread between German government bonds and the government bonds of the most indebted euro countries such as Italy has recently increased significantly.
Shares of fashion retailers plummet
A profit warning sent Asos shares plummeting. Newspapers from the British online fashion retailer fell as much as 18.8% to 942p and were listed weaker than they had been in nearly twelve years. Inflationary pressure is increasingly affecting customer buying behavior, which is why the forecasts cannot be maintained, the company said. Adjusted pre-tax profit of £ 20m to £ 60m is now forecast for the fiscal year ending August, up from an average of £ 83m previously estimated by analysts.
Competitor Boohoo also experienced a drop in sales from March to May, further dampening sentiment in the retail sector. The European industry index fell 4.5%. Zalando fell as much as 12.3 percent and, at € 24.95, marked the lowest level in nearly three and a half years.
After a bleak outlook, shares of Netherlands-based tech investor Prosus fell by 4.7%. Prosus announced that profits are expected to decline by 2022 due to lower profit distribution by invested companies and higher e-commerce costs.