US Business

The Swiss franc is breaking records against the euro, giving the Swiss economy a temporary boost as central banks battle inflation — although experts remain cautious about the months ahead.

Seen as a safe haven, the Swiss currency briefly hit a high of 0.94 francs to the euro on Monday following the Italian general election.

While it has since eased back a little, it is nevertheless at the highest levels since the launch of the single currency more than 20 years ago, outside a brief flash crash in 2015.

“It’s more about the weakness of the euro than the strength of the Swiss franc,” Credit Suisse economist Maxime Botteron told AFP, citing the franc’s steadier performance against the US dollar.

“European growth is showing signs of running out of steam, even recession,” he said, noting that “these indicators come in a context where the Swiss National Bank (SNB) has changed its monetary policy”.

Switzerland’s central bank has abandoned the negative rate it has imposed since 2015 to combat the overvaluation of its currency.

Like other central banks, the SNB seeks to prevent inflation from taking root. But in the midst of soaring energy prices, the franc’s rise is providing it with welcome help in curbing price increases.

“In Switzerland, two-thirds of inflation is due to imports. An appreciation of the Swiss franc therefore reduces the rise of these goods a little,” said Botteron, adding that the SNB “therefore has less need to tighten monetary policy” than other central banks.

In August, inflation rose to 3.5 percent, its highest level in 29 years, but far behind the 9.1 percent recorded last month in the eurozone.

– Tourism boost – 

“There is a very clear strategy to shield Switzerland the against the rising inflation coming from the eurozone, the US and other trading partners,” said Thomas Flury, UBS bank’s global head of currency strategy.

The franc’s rise has not triggered panic, unlike in 2015 when exporters feared their production costs and export prices would explode.

“High inflation in the eurozone makes the real appreciation much less dramatic than in the past,” said Flury.

“Acceptance is coming because companies in Switzerland would rather have a stronger Swiss franc than discussions on wage rises that French or German companies will have to do, as well the cost pressures from imports.”

If this rise in the franc eases somewhat the pressure on their imports, Swiss companies, with well-filled order books, also have some leeway to increase their prices, said Botteron.

In tourism, another sector sensitive to the exchange rate, the franc’s rise has enabled Swiss hoteliers to increase their prices to a lesser degree than in neighbouring countries given the lower inflation, a spokesman for the Hotellerie Suisse hotel industry body told AFP.

“For hoteliers, this means that they should become even more competitive against foreign countries,” he explained.

As Switzerland nevertheless remains an expensive destination, the group remains cautious, fearing that “consumer budgets will tighten”.

However, this boost to the Swiss economy may only be short-lived.

“We’ll have to see how this develops over the winter,” said Flury.

Even if it is too early to guess how the exchange rate might develop, recession or weak growth in the European economy would hamper Swiss companies and the franc’s value may become a much more sensitive subject.

The French government vowed on Thursday to push through pension reform by the end of the winter despite fierce opposition from unions whose first major day of strikes failed to have much impact.

A nationwide day of stoppages called by the CGT union on Thursday — the first since President Emmanuel Macron was re-elected in April — caused some disruption, but was not widely followed.

Several unions, including the country’s biggest, did not take part, although all of them are gearing up for a months-long battle over efforts to raise the pension age.

Macron made raising the retirement age from its current level of 62 one of the key planks of his re-election campaign, arguing that the current system was unsustainable and too expensive.

“All the unions in France are against working up to 64 or 65 years. Because it’s stupid,” the head of the CGT union, Philippe Martinez, told France 2. 

Left-wing political parties have called their own separate rallies on October 16 to demand pay rises and an end to the planned pension changes.

Though known to be in a rush to push through the changes, Macron’s Prime Minister Elisabeth Borne announced Thursday that the government would spend another few months in consultations.

“There are important questions we want to open talks about” with other political parties, unions and employers’ groups, Borne told AFP.

“We’re starting from the assumption that we’ll be able to hold a dialogue,” she added.

A bill would be voted on “before the end of the winter”, she promised.

– Fresh elections? –

With deficits spiralling and public debt at historic highs, Macron views pushing back the pension age as one of the only ways the state can raise revenues without increasing taxes.

But his centrist party lost its majority in parliament in June, severely undermining his ability to make changes.

“If the president insists on declaring a social war on the people, we will respond with all the means at our disposal,” the parliamentary leader of the hard-left France Unbowed (LFI) party, Mathilde Panot, warned on Wednesday.

Labour Minister Olivier Dussopt said that the 44-year-old head of state would not hesitate to call fresh elections if opposition parties voted down the government over the reform.

“If all of the opposition comes together to adopt a vote of no-confidence and brings down the government, he (Macron) will let French people decide and say what sort of a majority they want,” Dussopt told the LCI channel. 

No opposition party has pledged to support the centrist minority government so far, but the conservative Republicans party might still be persuaded, observers say.

– Stoppages – 

The strike on Thursday was followed by about one in ten teachers, according to the education ministry, leading to school closures in some areas.

One in three railway workers also stopped work, according to the CGT, leading to major cancellations on key routes including Paris-Bordeaux.

The biggest of around 200 protests nationwide was expected to draw 3,000-6,000 people in Paris on Thursday afternoon, according to a police source.

Around 4,300 people marched in the southern city of Marseille. 

The strikes and demonstrations were small by historic French standards and even the last round of protests against pension reform in 2019. 

Hundreds of thousands marched in 2019 and a four-week strike on Paris transport crippled the metro system in what was the longest stoppage in decades.

“I don’t know anyone who wants to work for longer, but I don’t know anyone who thinks they are not going to work for longer,” a minister close to the president told AFP last week on condition of anonymity.

“Maybe I’m mistaken, but I’m not sure that the turnout will be as large as the unions and LFI are hoping for,” the minister said of Thursday’s day of action.

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European equities sank Thursday on fears that rising interest rates will spark a global recession, while the pound clawed back ground one day after emergency bond-market intervention from the Bank of England.

German inflation accelerated sharply in September, official data showed Thursday in the latest indication that Europe’s biggest economy is buckling under the pressure from soaring energy prices.

Consumer prices spiked 10.0 percent compared to the same month a year earlier.

German Chancellor Olaf Scholz announced that the nation would plough 200 billion euros ($194 billion) into shielding households and businesses from skyrocketing energy costs in the wake of Russia’s invasion of Ukraine.

However, Frankfurt stocks accelerated losses to shed 1.6 percent in value, while Paris showed a similar drop.

London equities fell as the pound rebounded somewhat from earlier falls, one day after the BoE snapped up UK bonds to avert a risk to UK financial stability.

The BoE, the European Central Bank, the US Federal Reserve and many other counterparts are ratcheting up interest rates to fight decades-high inflation.

Oil prices dropped on the strong dollar, which makes US-priced commodities more expensive for buyers using weaker units.

– ‘Pessimistic’ investors –

“There’s a growing list of reasons why investors are pessimistic right now, with the prospect of an interest-rate recession being right up there,” Craig Erlam, analyst at trading platform OANDA, told AFP.

“But we are increasingly seeing pressures mounting and forcing responses from policymakers that are not normal. That started out as super-sized rate hikes, and now includes Japanese foreign-exchange interventions and the BoE intervening in bond markets.”

Stocks had also rallied Wednesday partly after the BoE’s surprise purchase, which came after Britain’s recent tax-cutting budget sparked soaring bond yields and sent the pound to a record dollar low on Monday. 

The BoE launched a two-week programme to buy long-term UK bonds, capped initially at £65 billion ($71 billion), as UK pension funds scrambled to sell investments to remain solvent.

Despite falling equities, the UK bond market was further soothed on Thursday.

The UK government’s 30-year sovereign bond yield retreated further to 3.97 percent, having briefly surged Wednesday to a 1998 peak at 5.14 percent.

Meanwhile, sentiment was also dented this week by leaks from the undersea Nord Stream pipelines running from Russia to Europe.

That sparked accusations of sabotage amid strained relations between the West and sanctions-hit Russia over the latter’s war on Ukraine.

– Key figures at around 1210 GMT –

London – FTSE 100: DOWN 1.2 percent at 6,922.60 points 

Frankfurt – DAX: DOWN 1.6 percent at 11,985.83

Paris – CAC 40: DOWN 1.4 percent at 5,683.07

EURO STOXX 50: DOWN 1.5 percent at 3,284.01

Tokyo – Nikkei 225: UP 1.0 percent at 26,422.05 (close)

Hong Kong – Hang Seng Index: DOWN 0.5 percent at 17,165.87

Shanghai – Composite: DOWN 0.1 percent at 3,041.20 (close)

New York – Dow: UP 1.9 percent at 29,683.74 (close)

Pound/dollar: UP at $1.0844 from $1.0689 on Wednesday

Euro/dollar: DOWN at $0.9710 from $0.9735

Euro/pound: UP at 89.53 pence from 89.40 pence

Dollar/yen: UP at 144.70 yen from 144.16 yen

Brent North Sea crude: UP 0.1 percent at $89.37 per barrel

West Texas Intermediate: UP 0.2 percent at $82.28 per barrel

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UK Prime Minister Liz Truss on Thursday defended her tax cutting policy after days of silence during which markets tanked and the Bank of England was forced into an emergency intervention.

“We had to take urgent action to get our economy growing, get Britain moving, and also deal with inflation,” she said in a round of local BBC radio interviews.

“And of course, that means taking controversial and difficult decisions, but I’m prepared to do that as prime minister,” she said in her first comments to UK media since the crisis sparked by Friday’s “mini-budget”. 

“It’s important the United Kingdom’s on the front foot, that we are pulling all the levers we can to drive economic growth. That is what we are pushing ahead with.” 

In power for less than a month, Truss is already under severe pressure after the markets reacted to her government’s tax cuts by sending the pound to an all-time low against the dollar.

UK markets remain highly volatile, with the central bank intervening on Wednesday to buy government bonds in order to prevent a “material risk” to stability.

The Bank of England announced a two-week programme to buy long-term UK bonds, capped initially at £65 billion ($71 billion), as UK pension funds scrambled to sell investments in order to remain solvent.

After sterling hit its dollar low early Monday, the bank said it would “not hesitate to change interest rates by as much as needed” to curb high inflation.

But it also signalled that it would wait until its next policy meeting on November 3 before fully assessing the impact of the government’s contentious plans.

Opposition leaders have demanded that Truss cancel her Conservative party’s annual conference starting on Sunday and recall parliament over the crisis.

– Truss v IMF –

Markets are concerned that Britain cannot fund its huge spending commitments, having announced a massive fuel subsidy package alongside the tax cuts.

Truss defended her fiscal policy, which includes a cut to the top rate of income tax, arguing the UK currently had its highest tax burden in 70 years. 

“We’ve reduced those taxes across the board. And of course people who are better off tend to pay more taxes,” she said.

The pound slipped again on Thursday, while former Bank of England chief Mark Carney said the government had “undercut” financial institutions. 

“Unfortunately having a partial budget, in these circumstances — tough global economy, tough financial market position, working at cross-purposes with the bank — has led to quite dramatic moves in financial markets,” he told the BBC. 

But Truss insisted she was working “very closely” with the central bank.

In a highly unusual intervention on Wednesday, the International Monetary Fund said it was “closely monitoring” developments and urged the UK government to change tack.

It noted that Truss and her finance minister, Kwasi Kwarteng, were trying to deal with the energy shock and boost growth.

“However, given elevated inflation pressures in many countries… we do not recommend large and untargeted fiscal packages at this juncture.” 

The IMF stressed the importance of fiscal policy not working “at cross purposes to monetary policy”.

Many central banks, including the Bank of England, are aggressively hiking interest rates in a bid to cool decades-high inflation. 

“There are many people with many different opinions, but what I think nobody is arguing with is that we had to take action to deal with what is a very, very difficult economic situation,” Truss retorted.

“My priority was making sure that we were supporting the British people in what is going to be a very difficult winter.”

A fourth leak has been detected in undersea gas pipelines linking Russia to Europe, the Swedish Coast Guard said Thursday, after explosions were reported earlier this week in what NATO called “reckless” sabotage.

The Nord Stream 1 and 2 pipelines link Russia to Germany, and have been at the centre of geopolitical tensions as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following Moscow’s invasion of Ukraine.

The Swedish Coast Guard confirmed Thursday there were four leaks in total on the pipeline in the Baltic Sea — two on the Swedish side and two on the Danish side. Three leaks were previously reported. 

While the pipelines — operated by a consortium majority-owned by Russian gas giant Gazprom — are not currently in operation, they both still contained gas.

On Thursday, NATO declared that the damage was “the result of deliberate, reckless and irresponsible acts of sabotage”.

“These leaks are causing risks to shipping and substantial environmental damage,” the Western military alliance said in a statement. 

Russia has denied it was behind the explosions — as did the United States, saying Moscow’s suggestion it would damage the pipeline was “ridiculous”. 

Russia’s security service launched an “international terrorism” investigation into the gas leaks, saying the damage had caused “significant economic damage to the Russian Federation”.

It said Thursday suspects a foreign state of being behind the leaks.

The UN Security Council will meet Friday to discuss the matter.

– ‘Constant’ gas flow –

The vast leaks have caused underwater gas plumes, with significant bubbling at the surface of the sea several hundred metres wide, making it impossible to immediately inspect the structures. 

Seismic institutes on Tuesday reported they had recorded “in all likelihood” explosions in the area, prior to the leaks being detected.

A Swedish Coast Guard search and rescue vessel was patrolling the area.

“The crew reports that the flow of gas visible on the surface is constant,” the agency said in a statement. 

Danish authorities said the leaks will continue until the gas in the pipelines is exhausted, which is expected to occur on Sunday.

Fatih Birol, executive director of the International Energy Agency (IEA), said at a symposium in Paris that to him it was “very obvious” who was behind the leaks.

He said natural gas shortages in the wake of the war in Ukraine could make for a tough winter in Europe. 

“In the absence of a major negative surprise, I think Europe, in terms of natural gas, can survive this winter with a lot of bruises in our bodies in terms of prices, economy and social issues, but we can go through that,” Birol said. 

According to climate groups, Nord Stream 1 and 2 contained some 350,000 tonnes of natural gas — methane.

Greenpeace says the leaks could have the effect of almost 30 million tonnes of CO2, or more than two-thirds of the annual emissions of Denmark.

Luxury sports carmaker Porsche raced onto the Frankfurt stock exchange Thursday with one of Europe’s biggest listings in years, leveraging its brand power to defy global market turmoil.

Its shares rose to over 84.70 euros ($81.90) in morning trading, bettering the 82.50 euros price set by its parent company Volkswagen, and outperforming a weak Frankfurt market.

Even as markets worldwide suffer from surging inflation and mounting recession fears, the maker of the 911 sports car has pushed ahead with the bold flotation that gives Porsche a valuation of more than 76 billion euros.

The carmaker’s chief Oliver Blume said the listing was a “historic moment for Porsche”, as he rang the bell to mark the start of trading at the Frankfurt exchange. 

“A big, proud day for all of us… We are adding a new chapter to the unique history of Porsche,” added Blume, who is also the CEO of the wider German auto group Volkswagen.

Volkswagen is set to raise 9.4 billion euros ($9.2 billion) from the listing, with some to be ploughed into the group’s shift to electric vehicles that is bringing it into greater competition with US rival Tesla.

In terms of value of shares issued, Porsche’s is the biggest stock market debut in Germany since Deutsche Telekom’s in 1996, and the largest in Europe since the 2011 flotation of Switzerland-based commodities giant Glencore.

– ‘Crazy, cool’ –

Analysts have looked to the carmaker’s market entry for some cheer against a morose economic backdrop, with investment bank Berenberg saying it could “offer a catalyst in an industry sorely lacking positive surprises”.

It has generated buzz in Porsche’s home market of Germany, where top tabloid Bild described it as “crazy, cool, fast-paced”.

“Sports car icon Porsche goes full throttle and races onto the stock market,” read a column in the paper.

It has also drawn interest from major investors, including Qatar and Abu Dhabi’s public investment funds, Norway’s sovereign wealth fund and US asset management firm T. Rowe Price. 

The IPO has seen 113.9 million shares of “Porsche AG” issued.

While the carmaker’s valuation is below some earlier estimates, it still catapults it above rivals such as BMW, with a valuation of 47 billion euros, and Mercedes-Benz, with a 56-billion-euro capitalisation.

– Electric drive –

Porsche has joined the electric drive of the Volkswagen group, whose brands also include Audi and Skoda, in earnest. 

The electric “Taycan” has been the brand’s best-selling model since January, an electric version of the “Macan” is due in 2024, as well as the launch of a new SUV in the middle of the decade.

The electric strategy includes building battery factories across Europe and the US. Volkswagen announced this week it will work with Belgian group Umicore to produce battery materials. 

The IPO sees preferential shares sold to investors, which have no voting rights, while Volkswagen is also selling 25 percent of the carmaker to Porsche SE. 

The eponymous company is a listed holding controlled by the Porsche-Piech family, who in turn are the main shareholders in Volkswagen.

This means that Porsche SE will have a blocking minority that will allow it to steer the future of the company.

Volkswagen hopes that listing a minority stake in Porsche will push up its own stock market value, which is 85 billion euros — just a fraction of Tesla’s, at just over $900 billion.

While the Porsche IPO generated excitement, concerns surrounding governance have been brewing at Volkswagen.

The dual role of Blume  — who has kept the top job at Porsche, despite being recently appointed CEO of Volkswagen group — has in particular raised eyebrows.