By Patrick Foot, financial markets writer at IG
For a year still in its infancy, 2015 has seen a lot of action across global financial markets thus far.
So much so, that many of the blockbuster stories at the end of last year – some of them still ongoing – have to an extent been overshadowed. The Russian rouble has continued to toil – Standard & Poor’s recently cut Russian debt to ‘junk’ status. Oil shows no sign of returning to strength anytime soon.
Perhaps the most notable feature of 2015 so far has been the unpredictable nature of market volatility. The status quo that many were predicting for the next 12 months is already being pulled seriously into question.
In the USA, another strong non-farm payrolls figure kicked off the year much as many were expecting. 252,000 jobs were added in December, against an anticipated 240,000. Unemployment fell faster than economists were estimating and with the previous figure being rounded up considerably, the US dollar went on the rise again. In the US, at least, the world had a leading light that wouldn’t fail.
Then came a durable goods figure that was stunningly off the pace, as orders declined 3.4% when the markets were expecting a narrow increase. Previous figures were also revised down amidst a substantial refresh of America’s economic outlook. As Chris Beauchamp, analyst at forex trading platform IG, noted: ‘The World Bank’s warning from just two weeks ago looks very prescient now, as a hitherto strong performance from the US begins to weaken. The world can ill afford Uncle Sam catching a cold.’
The bad news was only compounded by an earnings season that was seeing major companies miss expectations with alarming regularity. Microsoft and Caterpillar announced earnings either side of the durable goods report, with both companies missing the mark on several key figures.
Apple’s amazing iPhone sales aside, US earnings pointed to several major weaknesses in the US economy. All told, the US’s biggest three banks missed revenue expectations by a collective $3.19 billion.
But the biggest shock to the markets came not from the US but from Switzerland. The Swiss currency crisis caught the markets unawares, and sent shockwaves through equities, currencies and commodities. Its effect was such that it is still extremely difficult to pick apart exactly how a suddenly-valuable Swiss franc will play out across global economies.
The Swiss franc had been pegged to €0.83 since September 2011, and the Swiss National Bank had shown little regard towards scrapping the peg. Despite many noting since how damaging artificially holding a currency pair’s value can be – by 2014, Swiss currency holdings were equivalent to around 75% of GDP, and were on the rise – a drastic move from a famously conservative central bank was predicted by no one. As many have pointed out, the problems associated with pegging currencies may not have even applied to the Swiss franc against the euro.
However, the problems of suddenly unpegging currencies are now well known, as traders found out on January 15. The Swiss franc suddenly returned to its former high valuation, instigating one of the biggest moves in a major currency ever seen. Swiss business, banks around the world, and financial traders all lost millions.
If anything, the first few weeks of 2015 demonstrated that predicting the next 12 months of financial movements is a task beyond human comprehension. Whatever the rest of the year brings, though, it looks set to be a rocky ride.
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