Chaos erupted on City trading floors yesterday after the Swiss National Bank (SNB) abandoned its three-year-old cap on the value of the Swiss franc.
Obscenities were hurled and confusion reigned following the SNB’s shock announcement, traders reportedly told Bloomberg. Another source said that top bankers were forced to clear their diaries and meetings were cancelled.
The franc soared by almost 30 per cent in value against the euro on Thursday following the decision to lift the €1.20 cap. The franc also rose 30 per cent against the dollar and 15 per cent against sterling.
David Madden, an analyst at IG Group Holdings Plc (IGG), told Bloomberg that workers had not been prepared for the news.
“The move caught everyone off guard,” he said. “The Swiss central bank has sent the markets into a tailspin.”
Meanwhile Swiss stocks sank today, extending the sell-off sparked by yesterday’s news.
Watchmakers Swatch and Richemont - seen as the most vulnerable to a higher franc because they are largely produced in Switzerland but sold abroad - were down 5.6 per cent and 6.3 per cent respectively.
A wave of profit warnings from Swiss companies is now expected, and investment banks including JP Morgan and Societe Generale have slashed their earnings forecasts for several companies.
With more than 40 per cent of Swiss exports going to the euro zone, companies across Switzerland are set to suffer a plunge in profits, analysts and fund managers warned.
“The likelihood is that the Swiss economy will have to be completely recalculated,” Lorne Baring, managing director of Geneva-based wealth management firm B Capital told Reuters.
“Tourism and exporters will feel this ... and Swiss investors with euro zone and US holdings will feel betrayed by the Swiss National Bank.”
At 11.19 GMT, the Swiss blue-chip index SMI was down 4.3 per cent, adding to a 8.7 per cent slump on Thursday. The index hit a 13-month low in early trade.
The pan-European FTSEurofirst 300 index was flat at 1,393.64 points, trimming gains made late on Thursday. Investors decided then that ditching the franc's cap meant the SNB was anticipating a European Central Bank programme to buy government bonds, which should support euro zone equities.
A number of fund managers and traders felt the market had by now mostly priced in the introduction of such a quantitative easing programme by the ECB next Thursday.
“QE (speculation) has been around for so long that I think it will be a 'buy the rumour and sell the announcement',” said Markus Huber, a trader at Peregrine & Black.
Additional reporting by Reuters