SMI underperforms after Draghi disappoints

4 December 2015 – Weekly Swiss and global market roundup.

Brought to you by Investec Switzerland.

The SMI underperformed the MSCI World this week along with other European markets after a cut in the European Central Bank’s deposit rate and the magnitude of the extension of its quantitative-easing plan announced on Thursday afternoon disappointed investors. While Swiss and European stocks tumbled, the euro rallied from a seven-month low against the dollar and strengthened significantly against the Swiss franc.

On Thursday, the ECB said that it will extend quantitative easing by six months until at least March 2017 at the current rate of 60 billion euros a month and broaden the assets purchased to include local and regional debt. The Governing Council reduced the deposit rate by 10 basis points to minus 0.30%. The biggest disappointment was cited as a lack of expansion in the size of the current easing purchases.

A speech of Federal Reserve Chair Janet Yellen on Wednesday was also a driver of market sentiment this week. Yellen said that the US economy is ready for higher borrowing costs. Wall-street responded with a sell-off as Yellen’s statements increased the possibility of a rate hike in mid of December to odds of above 70%. Chair Janet Yellen also suggested that the pace of future rate increases could depend on “actual progress” in inflation gains toward the central bank’s target.

In Swiss economic news, domestic economic growth stalled unexpectedly in the third quarter with momentum held back by weak performance in the energy, construction and financial sectors. The economy also has suffered due to the stronger franc. Output was unchanged in the three months through September, after increasing of 0.2% in the prior period. SNB president Thomas Jordan will be keeping a watchful eye on the euro with a view to acting to keep the franc in check in its monetary policy meeting on 9 December.

In Swiss company news, Zurich Insurance Group was the worst performer in the SMI this week. The firm said it will increase job cuts and relocations to a total of at least 1,800 as the company reduces costs and overhauls its biggest unit. The company will move 300 positions in group operations out of Switzerland by the end of 2018.

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