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Swiss franc soars as central bank lifts cap

The Swiss central bank has shocked financial markets by ending its bid to hold down the value of the franc against the euro. The surprise announcement sent the safe-haven Swiss currency soaring and shares plunging. In a surprise announcement on Thursday, the Swiss National Bank (SNB) said it was ending its policy of trying to keep the value of the Swiss franc at a minimum exchange rate of 1.20 francs for one euro. Following the announcement, financial markets were in an uproar. The Swiss franc appreciated immediately by almost 30 percent against the euro, breaking past parity and trading at 0.85 francs per euro before dropping back to about 0.98 in later trading. The exchange rate cap policy had been introduced by the SNB in September 2011. It was a reaction to a side effect of the eurozone debt crisis, which had sent investors scurrying to the Swiss franc as a safe-haven currency. That drove the franc to levels that made life very difficult for Swiss exporters. In a statement, SNB noted that the country's economy had since "adjusted to the new situation." "While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate," the SNB said. The reaction of the Swiss stock market didn't reflect this sanguine view. Swiss shares were pummelled, with the country's SMI index falling by 10 percent shortly after the announcement - the biggest one-day fall in at least 25 years. Two major Swiss banks, Julius Baer and UBS, were down 13 and 11 percent respectively. "The explanation that the overvaluation has decreased has been wiped out within seconds," Bank Sarasin economist Alessandro Bee told the news agency Reuters. "Let's hope that this is an extreme move that will normalize soon." Collateral damage: Polish homeowners take a hit The SNB's move didn't have repercussions just in Switzerland. The financial shock slammed into Poland as well. About 700,000 households there have mortgage debts denominated in Swiss francs. With the Polish currency, the zloty, having lost about twenty percent of its value in one fell swoop, these debtors could see their mortgage payments - for many families, it's their biggest monthly expense - go up by the same proportion. Watch out, this is big Nick Hayek, CEO of Swatch, the biggest watchmaker in the world, said SNB's move hit stock market like a tsunami. Switzerland-based Swatch exports nearly all its products. The cap of 1.20 euros per Swiss franc had helped the company avoid overpricing its watches in foreign markets. With the cap gone, markets were quick to revalue the company's shares downward. A new game plan is needed Swissquote analyst Ipek Ozkardeskaya told Reuters that she expected the "panic situation" in the franc to continue until SNB unveiled "a new game plan." She also said that an "accidental break" of the exchange rate floor would have been more serious for SNB credibility. In recent months, SNB massively intervened in foreign exchange markets, buying vast quantities of euros to prevent the franc from appreciating. Upward pressure on the Swiss currency appeared to be caused in part by investors fleeing to safety amid the Russian ruble crisis. In an effort to discourage excessive investment in the currency, SNB also announced Thursday that it would slash its already negative interest rate on certain bank deposits by a further 0.5 percent - which means it will now charge the relevant account holders 0.75 percent per annum just to hold francs. The negative interest rate policy, which was first introduced just a month ago, in December, applies only to demand accounts with balances above ten million francs.

The Swiss central bank has shocked financial markets by ending its bid to hold down the value of the franc against the euro. The surprise announcement sent the safe-haven Swiss currency soaring and shares plunging. In a surprise announcement on Thursday, the Swiss National Bank (SNB) said it was ending its policy of trying to keep the value of the ... Read More »

Top EU court says ECB bond-buying is legal

The European Court of Justice has provided a non-binding opinion that confirms the legality of the European Central Bank's bond-buying scheme. That program has been challenged by economists and politicians in Germany. The European Union's top court said Wednesday the European Central Bank's bond-buying program, known as quantitative easing, was legal. In an opinion released by an advocate general at the European Court of Justice, the body said the scheme to buy government bonds was legitimate and in line with monetary policy. The opinion was non-binding. A final ruling by a 15-judge panel is expected in the next six months. The ECB's bond-buying plans fall under its so-called Outright Monetary Transactions (OMT) program, which has been met with stark opposition from many German policymakers. Also on Wednesday, ECB President Mario Draghi said the bank's options were limited when it came to shoring up the eurozone economy and fending off a deflationary spiral. "All members of the ECB's governing council are determined to fulfill our mandate," Draghi told Germany's Die Zeit weekly. "Of course there are differences about how we can do that. But it's not as if we have an endless amount of possibilities."

The European Court of Justice has provided a non-binding opinion that confirms the legality of the European Central Bank’s bond-buying scheme. That program has been challenged by economists and politicians in Germany. The European Union’s top court said Wednesday the European Central Bank’s bond-buying program, known as quantitative easing, was legal. In an opinion released by an advocate general at ... Read More »

Oil prices cool as rhetoric heats up

Officials in some oil-rich states have issued staunch warnings about oversupply in the oil market. Even as the global economy picks up steam, a supply glut has dragged down prices and depressed energy shares. Oil prices slid to their lowest levels in almost six years on Tuesday as a prominent oil-rich country's energy minister reiterated OPEC would not cut its oil output to support global prices. "We cannot continue to be protecting a certain price," the United Arab Emirates' energy minister, Suhail al-Mazroui, said in Abu Dhabi. "We have seen the oversupply, coming primarily from shale oil, and that needed to be corrected." While al-Mazroui spoke, the price for a barrel of Brent crude dropped 4 percent below $46, extending Monday's 5.3 percent plunge that came as Goldman Sachs cut its price outlooks for the oil market. Yesterday, Brent crude closed below $50 for the first time since April 2009. Goldman Sachs lowered its three-month price forecast for Brent to $42 a barrel from $80. It also lowered its estimate for the coming year, saying Brent crude would average $50.40 a barrel, down from $83.75. Forecast for another oil contract, West Texas Intermediate, were also reduced to $39 a barrel within six months, down from a previous estimate of $75. During the day on Tuesday, the price for a barrel of Brent crude fell as low as $45.23. Price wars With the price of oil now at a near six-year low, analysts expect the availability of new sources of oil and the inability of OPEC to prevent a price war between producers to further drag down oil prices. The UAE last week joined Kuwait and Iraq in pricing crude they sell to Asia below that of OPEC's top producer Saudi Arabia in an effort to retain market share. Also on Tuesday, Iranian President Hassan Rouhani issued a staunch warning to countries he said were undercutting other's oil revenues. "Those that have planned to decrease the prices against other countries, will regret this decision," Rouhani said in a speech broadcast on state television. "If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran." Win some, lose some Oil prices have fallen by more than half since last summer. High prices for crude spurred producers in the US and Canada to tap shale oil using new extraction technology. In response, Middle Eastern producers, notably Saudi Arabia and Iraq, started pumping more oil in a bid to reduce the incentive for bringing these new oil sources online. At its November meeting, OPEC was widely expected to announce a production cut to shore up prices, but it did nothing. Since then, the price drop has continued unabated. The lower prices have been good news for consumers, particularly in Europe and the US, which are still recovering from the global financial crisis. But the fall in prices has been disastrous for big oil producing states such as Russia, which was already reeling from western economic sanctions imposed for its annexation of Crimea and involvement in the conflict in eastern Ukraine. Venezuela, another big oil producer, also faces economic collapse.

Officials in some oil-rich states have issued staunch warnings about oversupply in the oil market. Even as the global economy picks up steam, a supply glut has dragged down prices and depressed energy shares. Oil prices slid to their lowest levels in almost six years on Tuesday as a prominent oil-rich country’s energy minister reiterated OPEC would not cut its ... Read More »

VW sells more than 10 million vehicles

Germany's Volkswagen has cracked the 10 million vehicle mark, the first double-digit million-unit sales in the company's history. Sales were up in China and the US, where a major auto show kicks off this week. Germany's Volkswagen in 2014 sold more than 10 million vehicles for the first time, the carmaker's chairman Martin Winterkorn announced Sunday ahead of the opening of a major auto show in Detroit. VW sold 10,140,000 million vehicles, a 4.2 percent increase over 2013, a goal the company set for itself as part of a broader strategy to, among other things, become the world's largest automaker. The eight-figure mark was made possible by robust sales in Asia, which were up 11.3 percent on the year as a whole and topped 4 million units for the first time. Most of the growth in Asia was in China, where VW sold 3.7 vehicles. Sales in the US, where the North American International Auto Show begins Monday with two press days followed by a two-day industry preview and a black tie charity gala, were less notable and declined by 2 percent. Sales in South America fell by a whopping 19.8 percent. As VW aims to carve a bigger niche for itself in global auto markets, it has undergone a number of expansions around the world, including in China, the US and Latin America. The German heavyweight is tripling its product range in the fast-growing crossover segment and will unveil a midsize sport-utility vehicle with seats for five in Detroit. The company has realized that in order to lure more American consumers to buy its vehicles, VW must better cater to their tastes. With the price of oil dropping to lows not seen in years, those tastes could mean more horsepower and superior performance - two buzzwords in Detroit this year. "It took us long to realize that the US market requires more special attention," a senior manager at VW's headquarters in Germany told the Reuters news agency.

Germany’s Volkswagen has cracked the 10 million vehicle mark, the first double-digit million-unit sales in the company’s history. Sales were up in China and the US, where a major auto show kicks off this week. Germany’s Volkswagen in 2014 sold more than 10 million vehicles for the first time, the carmaker’s chairman Martin Winterkorn announced Sunday ahead of the opening ... Read More »

China manufacturing drops to 2014 low

Factory activity in China dropped to its lowest level in 2014 in December. Weak domestic demand, a property slump, and soft exports all contributed to the fall. China’s official Purchasing Managers’ Index (PMI) came in at 50.1 in December, down from 50.3 in November. It’s the weakest reading in 2014. A figure above 50 signals expansion, below 50 shows a ... Read More »

China’s top train makers merge, eye global market

China CNR and CSR have confirmed they're to merge to create a "world-leading" global railway supplier. Shares of both firms surged on the news. "Through the merger, CSR and CNR propose to build jointly a brand-new, multinational world-leading supplier of high-end equipment and systems solutions with rolling stock at its core," a statement by the two companies said. Shares of the two companies soared on the news, in both Hong Kong and Shanghai. The deal, which is worth 160 billion yuan ($26 billion, 21.4 billion euros) will see the China South Locomotive & Rolling Stock Corporation (CSR) absorb the shares of the China CNR Corporation. The companies were spun off from the same state-owned rail vehicle maker in 2000 and currently compete separately in the global market. In October, CNR made a name for itself by securing a deal to supply metro trains to the US city of Boston. CSR was part of a consortium that won a $3.75 billion high-speed railway contract from Mexico in early November, but the deal was canceled due to questions over the legality of the bidding process. Expanding abroad China's train makers are keen to expand abroad, as the domestic market is largely saturated. CSR and CNR are already a household name in South-East Asia, Africa, and Latin America. But the newly merged company is also eager to expand in Europe and the US, where it is eyeing a contract for high-speed trains for the state of California. Both companies are instrumental in building the largest high-speed network in the world in China, which allowed them to develop their own high-speed trains that can compete with those of Germany's Siemens, Canada's Bombardier, or France's Alstom. CNR and CSR also build most of China's underground trains as well as 80 percent of China's freight trains. Generous financing from state infrastructure funds and China's state banks may even give them the edge over foreign rivals.

China CNR and CSR have confirmed they’re to merge to create a “world-leading” global railway supplier. Shares of both firms surged on the news. “Through the merger, CSR and CNR propose to build jointly a brand-new, multinational world-leading supplier of high-end equipment and systems solutions with rolling stock at its core,” a statement by the two companies said. Shares of ... Read More »

Ukraine economy: ‘Worst year since WWII’

Ukraine's central bank has stated the nation's economy experienced its worst year since the Second World War. It said growth dipped considerably amid an alarmingly high inflation rate, but offered an optimistic outlook. Ukraine's central bank chief, Valeria Gontareva, told reporters in Kyiv Tuesday that the conflict-torn country's economy contracted by 7.5 percent this year, making 2014 the most painful year for the country in decades. "Our country has not lived through such a difficult year since at least World War II," Gontareva said at an end-of-year news conference, adding, though, that "we're looking forward to 2015 with optimism." Gontareva's comments came a day after the national parliament approved an austerity budget for 2015 aimed at unlocking emergency aid from the International Monetary Fund (IMF) and other lenders. Conflict eats into reserves The central bank said it expected to receive three tranches of fresh credit from the IMF all at the same time after a visit by auditors in early January. Ukraine's inflation rate soared to 21 percent year-on-year in November not least due to shrinking gold and hard currency reserves, which more than halved in 2014 and dipped under $10 billion (8.2 billion euros) for the first time in five years. The central bank also gave up its support for the hryvnia, with the national currency slipping strongly against the greenback. It stood at 8.24 to the US dollar at the start of this year and deteriorated to 15.82 hryvnia to the greenback during trading on Tuesday morning.

Ukraine’s central bank has stated the nation’s economy experienced its worst year since the Second World War. It said growth dipped considerably amid an alarmingly high inflation rate, but offered an optimistic outlook. Ukraine’s central bank chief, Valeria Gontareva, told reporters in Kyiv Tuesday that the conflict-torn country’s economy contracted by 7.5 percent this year, making 2014 the most painful ... Read More »

German business leader Grillo slams PEGIDA protests

German Federation of Industry (BDI) President Ulrich Grillo has sharply criticized the anti-Muslim PEGIDA protests in Germany. He stressed the importance of immigrants for a strong economy. "We've been a country of immigration for some time, and that's how we must continue," the BDI's Ulrich Grillo told the DPA news agency at an event in Berlin. The organization represents more than 100,000 German companies with a total of around eight million staff. "As a wealthy country and simply out of Christian love of thy neighbor we should welcome more refugees," he added. The interview was held against the backdrop of mass anti-Islam protests that started in the eastern city of Dresden under the name "Patriotic Europeans Against the Islamization of the West," or PEGIDA. "I distance myself very clearly from the neo-Nazis and xenophobes that have gathered in Dresden and elsewhere," he said, adding that he believes PEGIDA is using Islamist terrorism as an excuse to reject and insult Islam as a whole. "It's completely unacceptable. We must fight all kinds of xenophobia," Grillo said. He also stressed that Germany's aging population depended on skilled labor from abroad, which he says will secure Germany's status as a wealthy country with healthy rates of growth. "Political leaders need to do much more to try to explain to people the opportunities [resulting from immigration] and to remove fear," he urged. "Our company has for generations employed people from many nations." Ulrich Grillo's family-run business is located in a part of the western German city of Duisburg which has a large immigrant population. "We are committed to our neighborhood, and it works out for us," he said.

German Federation of Industry (BDI) President Ulrich Grillo has sharply criticized the anti-Muslim PEGIDA protests in Germany. He stressed the importance of immigrants for a strong economy. “We’ve been a country of immigration for some time, and that’s how we must continue,” the BDI’s Ulrich Grillo told the DPA news agency at an event in Berlin. The organization represents more ... Read More »

Turkey’s economy: no more boom time

In the last few years, Turkey has been celebrating its booming economy. But recent numbers paint a more sober picture. Experts say the government has failed to implement reforms. Thomas Seifert reports from Istanbul. Third-quarter growth of 1.7 percent and a 2.8 percent expansion rate for the first nine months of the year would have many European countries in rapture, but in Turkey, these recent numbers have met with disappointment, as they came in far below market expectations. The Turkish government had forecast 3.3 percent growth for 2014, down from an initial 4 percent. Both numbers look increasingly unrealistic. And it is not just growth that's lackluster, unemployment has also risen to a seasonally adjusted 10.7 percent in September - the highest rate in four years. Youth unemployment stands at an even higher rate of 20 percent. Turkish consumers seem to have less disposable income now - car sales dropped by a hefty 19 percent in the first nine months of the year, compared with the same period the previous year. Homemade problems In part, Turkey's problems are caused by international events, such as the US central bank's policy of reducing its bond-buying program, which is having an effect on emerging economies worldwide. Betting on rising interest rates in the US, investors are taking their money out of Turkey to invest it across the pond. Turkey's economic boom was in large part driven by foreign investors. If they pull out, it could have dire consequences for the country. Experts, however, believe that many of Turkey's problems are homemade. Turkish businesses have invested a lot less in machinery and equipment recently, Hanife Cetin from Ankara-based think tank Türksam told DW. It's a problem for Turkey, as it needs a robust manufacturing sector and more investment in research and development, according to Cetin. Calls for structural reforms The International Monetary Fund (IMF) has just warned Turkey to implement structural reforms to reduce its dependence on foreign investors. Turkey failed to kickstart reforms after 2008 when ample funds from abroad boosted the economy and there would have been room for maneuver, according to columnist Ugur Gürses in Turkish online newspaper Radikal. Gürses also lists political turbulence, allegations of corruption against members of the government and the recent arrests of journalists as negative factors affecting the economy. They have all contributed to the Turkish lira losing ground against major currencies, say analysts. Cetin believes that investors could remain wary of Turkey in the long run. Lower oil prices and higher state spending ahead of the parliamentary elections next year may boost the economy, but the effect will be short-lived. She predicts Turkey will have to grapple with high inflation, high unemployment and "economic fragility" for some time. Education is key Turkey needs a new growth model, says Emre Deliveli, economics columnist for Turkish daily Hürriyet. He told DW that he believes Turkey needs to shift from relying on domestic demand to an export-led economy with a focus on advanced technology. Deliveli says Turkey has so far not managed to transform manufacturing from making cars, for example, to making more high-tech products. For that to happen, Turkey must reform its education system to boost research and development, the expert stresses. The government has promised changes, but very little has happened, says Deliveli. And he doesn't expect that to change significantly before the elections in mid-2015.

In the last few years, Turkey has been celebrating its booming economy. But recent numbers paint a more sober picture. Experts say the government has failed to implement reforms. Thomas Seifert reports from Istanbul. Third-quarter growth of 1.7 percent and a 2.8 percent expansion rate for the first nine months of the year would have many European countries in rapture, ... Read More »

Ruble continues cautious rise, China offers help

The Russian ruble rose once more against the US dollar on Monday, making up some of last week's huge losses. Russia has ruled out currency controls while China has offered help. The Russian ruble started the week on a decidedly better note than last week, when one US dollar fetched 77 rubles - a record high. In early afternoon trading on Monday, a dollar cost just 56 rubles. Deputy Prime Minister Igor Shuvalov, who oversees the economy, said he expects the Russian currency to extend its recent gains and that he "opposes" currency controls as a way to tackle the ruble crisis. The ruble has lost over 45 percent of its value against the greenback, suffering particularly steep falls early last week. China offers help Meanwhile, Beijing has offered to help Moscow, if need be. Chinese Foreign Minister Wang Yi told a state newspaper on Monday that China was willing to assist Russia, but believes that the country has the "wisdom" to overcome its current economic problems. "If the Russian side needs, we will provide necessary assistance within our capacity," he said without giving further details. The ruble's tentative recovery came after Prime Minister Dmitry Medvedev voiced confidence last week that Moscow can contain the crisis. The central bank announced a range of measures, and the finance ministry said it was selling around $7 billion to prop up the ruble. "The finance ministry's decision to make available $7 billion of reserves for interventions has without a doubt helped the ruble," Ulrich Leuchtmann, currency expert at Commerzbank told the DPA news agency. Meanwhile, the Russian government said it would bail out Trust Bank with 30 billion rubles ($525 million) to avoid bankruptcy. It did not say the bailout was linked to the decline in the ruble, however. The ruble has been the worst performing currency this year along with the Ukrainian hryvnia.

The Russian ruble rose once more against the US dollar on Monday, making up some of last week’s huge losses. Russia has ruled out currency controls while China has offered help. The Russian ruble started the week on a decidedly better note than last week, when one US dollar fetched 77 rubles – a record high. In early afternoon trading ... Read More »

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