Swiss Franc De-Pegging Spells Trouble for the Markets :: HDFC Securities

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Global markets have been accustomed to the Central Bank action, which has always buoyed the markets were in for a rude shock. The de-pegging of the Swiss Franc from the Euro sent the global markets in a tizzy, on Thursday.

Currency, commodities and equity markets across the globe were in a state of shock as the sudden central bank action, caught everyone by surprise. The Swiss had pegged their currency- Swiss Franc to the Euro. One Euro was equal to 1.2 Swiss Franc. That peg was done away by the Swiss National Bank on Thursday, making the Swiss Franc soar 30%.

This sent shock waves across the globe as currencies, commodities and equity markets tried to adjust to the unexpected changes.

The currency wars may just be the beginning

It is not often you see U.S. dollar versus any other currency down 13% in an hour. That was precisely what currency traders saw with their bulging eyes. Such moves don?t augur well for the currency markets.

Remember that it isn?t the direction of currency moves that matter as much as the speed and magnitude in which changes in those moves happen. And yesterday, these intraday currency charts looked more like weekly charts than the 1-hour charts they actually are.

These currency dislocations are probably not bullish for stocks in the near-term, though it is bullish for gold in the near-term and long-term. The currency markets is much larger than the equity and commodity markets put together. The volatility is definitely a cause for concern.

Do not go over board

The Swiss had just said on 12th  January that they will defend their peg determinedly.
We think the European Court of Justice?s decision of holding the OMT of the ECB valid was the last straw on the Swiss camel. Probably, this is what may have given the comfort of a rate cut to our own Reserve Bank of India (RBI).

One event and two central banks have acted differently. The Nifty is likely to open higher yet again this morning. Don?t go over board and take too many risks. 

While Indian markets stand out in contrast to the rest of the world, let the Greek Elections be out of the way first.
 
Banks start cutting rates

Soon after the RBI's surprise rate cut by 25 bps, United Bank and Union Bank of India announced a cut in their base lending rate, while PNB indicated it could do so at its next Asset Liability Committee (ALCO) meeting.

United bank announced a 25 bps cut in its base rate at 10.0% with effect from 1st February. According to the management the cut in base rate will help the bank to increase its credit portfolio. However, it has no immediate plans to revise its deposit rates as it was offering one of the lowest deposit rates in the industry.

Just after United Bank  announced a rate cut,  Union Bank of India  cut lending and deposit rates by up to 50 basis points or 0.50 per cent. Punjab National Bank also indicated to cut its base rate by 10-25 bps in the next week after its ALCO (Asset Liability Committee) meeting.

Bajaj Auto Q3 net profit falls less than expectations

Bajaj Autos net profit fell 4.8% Y-o-Y to Rs 861 crore on revenue of Rs 5,657 crore for the quarter ended December 2014. However, numbers were ahead of street expectations of profit of Rs 850 crore on total income of Rs 5,591 crore. Total income from operations during the quarter grew by 10% to Rs 5,657 crore, supported by higher export sales

Profit of the two-wheeler maker was supported by better operational performance but was impacted by lower other income. These numbers could be termed healthy.

Nifty Constituents - Axis Bank  &  Wipro to report today

It is the turn of the Axis Bank and Wipro to report today. Axis Bank is likely to report 18% Y-o-Y rise in its Net Profit at Rs 1895 crore followed by healthy NII growth. Net Interest Income (NII) is estimated to grow by 22% Y-o-Y. On asset quality front, gross NPA would remain flat at 1.3% of its loan book.

Revenue of Wipro is estimated to grow by 2% Q-o-Q at Rs 11915 crore in Q3FY15, where as in dollar terms it may rise by 1%. PAT is expected to come down by 2% sequentially to Rs 2040 crore due to lower other income.

Ownership set to change at Spicejet

After about a month of uncertainty, troubled low-cost carrier SpiceJet on Thursday informed the BSE that Kalanithi Maran and his associates had decided to transfer the ownership and management control of the airline to former promoter Ajay Singh and a clutch of investors.

Singh plans to infuse Rs 1,500 crore into the airline in three tranches. Maran and his associate company KAL Airways will transfer their 58 per cent stake to Ajay Singh, who will replace Maran as the company?s chairman.

RBI allows banks to act as insurance brokers through JVs, subsidiaries

The RBI said that banks will be allowed to offer insurance brokerage services by setting up a subsidiary or through a joint venture if they meet certain conditions. According to the RBI, banks are not allowed to undertake insurance business with risk participation departmentally and may do so only through a subsidiary or joint venture set up for that purpose. 

For undertaking insurance business with risk participation, banks should have a net worth of not less than Rs 1,000 crore and a capital to risk (weighted) assets ratio (CRAR) of not less than 10 per cent. The level of net non-performing assets should not be more than 3 per cent and the bank should have made a profit for the last three years.


Ashok Leyland introduces new electric bus in India

Commercial vehicle major Ashok Leyland today unveiled the Versa EV from its UK arm Optare plc, at the Bus & Special Vehicles Show organised by SIAM in Greater Noida, Delhi NCR.
The bus is targeted for feeder, airport tarmac and intra-city applications. Versa EV, the low-floor electric bus, minimises environmental impact, including zero emissions and zero noise; whilst matching the performance of a diesel vehicle. With its low-weight integral structure
 
U.S. markets fall for the 5th day

The U.S. stock market finished Thursday?s volatile session lower, extending the losing streak to five straight sessions. The Dow, which was supposed to open 200 points higher, actually ended up opening 90 points lower after the Swiss action. The Dow closed with a loss of 106 points or 0.61% to close at 17,321.

The S&P 500 lost 18 points or 0.91% at 1,993, breaking the 2000 mark. The Nasdaq Composite fell the most by 1.47% or 68 points to 4,571. Earlier the Swiss National Bank unsettled global markets by scrapping its four-year-old cap on its currency, removing the 1.20 floor against the euro. Shortly after the announcement, the franc soared nearly 30% against the euro. European markets suffered a choppy trading session with Germany's DAX losing 250 points in the minutes after the Swiss National Bank's announcement before bouncing back. The Swiss Market Index plummeted more than 8% as investors fled in favor of "safe haven" assets such as gold and bonds.

Wall Street's big banks disappointed in the fourth quarter with Bank of America and Citigroup reported falling revenues and squeezed profits. A day earlier, JPMorgan had tanked after the bank racked up nearly $1 billion in legal costs associated with government investigations in the fourth quarter. Wells Fargo also declined on a so-so quarterly report.

The Select Sector Financial SPDR ETF dumped 1.2%, Goldman Sachs will report on Friday morning. Crude oil trading was volatile after the commodity posted its biggest gain in two-and-a-half years on Wednesday. Earlier on Thursday, West Texas Intermediate had rallied more than 3% and reclaimed a level above $50 a barrel. By market close, oil had fallen 4.4% to $46.35 a barrel.

Gold surged $30.30, or 2.5%, to settle at $1,264.80, its highest level in four months.
The yield on 10-year Treasury notes fell 13 basis points to 1.72%, lowest level since April 2013.
December producer prices felt the pressure of lower oil with the Producer Price Index down 0.3% for the month, a slightly deeper dip than a 0.2% decrease in November.

The focus has now turned to consumer inflation figures, due for release before the bell Friday. December's Consumer Price Index is forecast to fall 0.4%, its largest drop since December 2008, as the price of gasoline continues to fall. Core prices, excluding volatile items such as gas and food, are expected to tick up 0.1%, unchanged from a month earlier. 

That reading would lead to a 1.6% annual pace of inflation, slightly under the Federal Reserve's target 2% rate. High-momentum tech names were dragged lower, led by a drop in Apple shares of 2.7%. The company was under pressure after an analyst downgrade to neutral based on a predicted slowdown in iPhone sales.

Amazon shares were also analysts reduced their 2015 revenue estimates by 1.7% to account for currency risks. However, the firm reiterated an "outperform" rating and raised operating margin and profit forecasts.

Other high-momentum movers caught up in the selloff included Facebook  , Yahoo!, and Twitter. The Technology SPDR ETF fell 1.3%.

Target shares jumped 1.8% after the company announced its full exit from Canada. The retailer will shutter 133 stores in the country. Best Buy slid after warning of lower sales in the first half of this year on price pressure and weaker demand. Shares were down more than 14%.
BlackBerry  shares were coming back down to earth after soaring nearly 30% on Wednesday afternoon on Samsung takeover rumors. The smartphone maker denied reports that Samsung had approached it with an offer. Shares dropped 19.8%.

Adobe shares gained 0.4% as its board announced a new $2 billion buyback program through to 2017.