The euro crisis is over and all is well in the world. Just ask Thomas Jordan.
The Swiss National Bank chief finally has reasons to be cheerful now that his stubbornly strong currency is sliding, and at quite a pace. The decline comes two-and-a-half years after the SNB stunned markets by allowing the once tightly controlled franc to rocket higher — an event noted in currency market folklore as one of the few occasions when traders were lost for (printable) words.
SNB officials have spent the period since then moaning about the strength of the franc. To try to help it along, the central bank has also amassed foreign currency reserves of SFr694bn ($717bn) — roughly the same size as the entire Swiss economy. Hey presto, the tide has turned at last.
Are investors finally following instructions? Not likely. It is all about the euro getting its mojo back, with politics (merci, Monsieur Macron) and general market sentiment all pulling in the same direction. The allure of the haven Swissie to foreign investors is melting, and locals are increasingly willing to put their funds to work abroad.
The franc fell against all major currencies in July. Its neighbour the euro has rocketed by more than 4 per cent against the franc since last week. Analysts are ripping up their conservative estimates. SFr1.13 by the end of the year? Try SFr1.17 by the fourth quarter, Oxford Economics now suggests.
While Mr Jordan is not unfurling the “mission accomplished” banner just yet, some investors view it all as a sign that big threats to global markets have passed. “Euphoria builds over years, not months,” notes David Stubbs at JPMorgan Asset Management, adding currency-hedged positive bets on Swiss stocks may be in order.
The sell side is brimming with ideas for using the franc as a so-called funding currency, to sell in favour of a range of higher-yielding assets, like perhaps the Australian dollar. It feels like 2007 all over again.
The big question is what the SNB will do with its franc-fighting war chest. It is too soon to start trimming it but, as Neil MacKinnon at VTB Capital points out, aside from eurozone government bonds, the SNB owns $80bn of US equities, tilted in favour of tech stocks.
The central bank is no stranger to sending ripples around markets. Be warned.