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Swiss stocks jump on currency peg news

Swiss stocks surged over three percent in early trading on Tuesday after the Swiss National Bank announced a currency peg of 1.20 francs per euro.

Swiss stocks jump on currency peg news
Michael Faes

At 0838 GMT the Swiss Market Index of the twenty most traded stocks was up 3.79 percent to 5,338.14 points.

Meanwhile, the Swiss franc, which had risen strongly in response to the eurozone debt crisis, plunged 9.32 percent to 1.212 francs per euro, after the Swiss National Bank’s currency peg announcement.

The central bank said in a statement that “with immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20.”

“The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development,” the SNB said.

Global offshore drilling group Transocean led the surge, climbing 9.29 percent to 43.42 francs per share, followed by watchmaking giant Swatch, which rose 5.87 percent to 351.60 francs, and temporary staffing agency Adecco, which increased 5.47 percent to 33.91 francs per share.

Banks also fared well despite continued fears over a tax dispute with the United States. Julius Baer was up 4.58 percent to 30.11 francs per share, followed by UBS which rose 4.55 percent to 10.79 francs, and Credit Suisse climbed 3.55 percent to 20.70 francs per share.

The Swiss economy is heavily dependent on exports, notably to the eurozone, and on tourism. The rise of the Swiss franc as a safe haven instrument in the latest twist of the eurozone debt crisis is hitting the Swiss economy hard.

Switzerland is not a member of the European Union and so is not a member of the eurozone.

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Switzerland STILL has priciest Big Macs in the world

Switzerland has the most overvalued currency in the world according to The Economist’s Big Mac Index 2017, which the alpine country tops once again.

Switzerland STILL has priciest Big Macs in the world
Photo: McDonald's Switzerland
Invented in 1986 as a light-hearted guide to purchasing power parity, the Big Mac Index compares the cost of a McDonald’s Big Mac burger in countries across the world. 
 
Using the US dollar as the base rate, the 2017 Index showed a Big Mac in Switzerland to cost $6.35 compared with $5.06 in the US, meaning the Swiss franc is overvalued by 25.5 percent.
 
The exchange rate that would equalize the price of a burger in the two countries is 1.28 francs to the dollar, while the actual exchange rate is 1.02 francs.
 
The franc far surpassed the second highest country, Norway, where a Big Mac cost $5.67, overvalued by 12 percent.
 
Sweden, Venezuela and Brazil were the only other countries to have pricier burgers than the States. 
 
According to this ‘burgernomics’, the euro and the pound are undervalued by 19.7 percent and 26.3 percent respectively, said The Economist. 
 
However, the situation is different in an adjusted version of the index which takes into account labour costs and GDP. 
 
When adjusting for Switzerland’s average income, the franc is only overvalued by four percent, it found.
 
Brazil topped the adjusted index, which showed the Brazilian real to be 66 percent overvalued.
 
“This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower,” said the Index authors. 
 
“The relationship between prices and GDP per person may be a better guide to the current fair value of a currency.”  
 
Switzerland has topped the raw index for several years. 
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