The Swiss National Bank’s June decision to cut its benchmark rate to zero took the country’s borrowing costs to the lowest level among major economies

International News via Reuters:

Banks in Switzerland will be searching for other ways to squeeze borrowers as their lending margins are hit by the central bank’s introduction of zero rates, analysts say, suggesting banking services and some types of credit may soon get costlier.

The Swiss National Bank’s June decision to cut its benchmark rate to zero took the country’s borrowing costs to the lowest level among major economies – far lower than the neighbouring European Central Bank’s key 2.0% deposit rate, for example.

Following the SNB’s two rate cuts this year, banks may see their net interest income fall by about 660 million Swiss francs ($830 million) this year, Daniel Geissmann from banking consultancy zeb estimates. Banks made roughly 20 billion francs from this business in 2024.

“Zero interest rates are the worst-case scenario for banks,” Geissmann said. “The banks lose because they can’t pass on the rate cut to deposits.”

When interest rates were last around 0% between 2011 and 2015, Swiss banks’ net interest rate margin fell from 1.4% to 1.1%, hitting profits, SNB data show.

Geissmann estimated banks lost out on nearly 4 billion francs between 2011 and 2014, but noted the effect would likely be less pronounced this time because lenders are starting from a lower margin level.

Reluctant to pass the cost on to depositors via sub-zero rates, if banks want to protect their profits they must make up for the missing revenues elsewhere.

Martin Hess, chief economist of the Swiss Bankers Association (SBA), said credit could become more expensive as banks have to rely on costlier sources of funding such as capital market instruments instead of deposits.

“Ultimately, this will be passed on to the real economy and customers,” he said, pointing to higher mortgage costs.

PROPERTY

Ultra-low interest rates tend to fuel demand for property, with the 2011 to 2015 period seeing house prices jump by 15%, triple the rate in 2000-2005, SNB data show.

“This increased risks in the property market of overvaluations and a correction, although it didn’t happen last time,” said GianLuigi Mandruzzato, an economist at EFG Bank.

“These risks could emerge again.”

It was also challenging for insurers and pension funds, which found it hard to generate returns to cover their commitments as yields from bond investments plunged, he noted.

UBS economist Maxime Botteron said that banks may also become increasingly reluctant to lend if the yield curve flattened further or inverted with rates at zero.

The stock market is also not immune to the impact of the SNB’s zero rates. With official rates well below those of other central banks in Europe and North America, shares of Switzerland’s main listed banks have already begun to underperform those of their rivals.

Shares of UBS, which faces tougher capital rules following its 2023 takeover of Credit Suisse, are up just 2.2% in 2025, while Julius Baer’s shares are down 6.7% as new management seeks to draw a line under a recent run of setbacks.

The Stoxx European Banks Index, by contrast, has risen 29.3% this year, highlighting the Swiss underperformance.

Savings and loans banks are likely to be most affected by the erosion of lending margins.

Banks that primarily collect deposits and issue mortgages such as Raiffeisen and Valiant generate more than 70% of their revenue from their interest business, company data show.

Less affected are outright wealth and asset managers like Julius Baer and Vontobel, which derive only around 10% from interest income. Diversified lenders like UBS at about 15% and ZKB with 54% lie in between.

Vontobel banking analyst Andreas Venditti said that how hard banks are hit by zero rates will ultimately depend on how long those rates stay in place.

“The problem gets worse if you stay at zero for a longer period of time,” he said. “Interest margins in Europe and especially in the U.S. are much higher.”

($1 = 0.7966 Swiss francs)

Reporting by Oliver Hirt, Ariane Luthi and John Revill; Additional reporting by Balazs Koranyi in Frankfurt; Writing by John Revill; Editing by Dave Graham and Hugh Lawson

The EU said it would extend a suspension of countermeasures to U.S. tariffs until early August

International News via Reuters:

World shares ticked lower on Monday, with European shares slipping as the latest salvo of threats in the U.S. tariff wars kept investors on edge, although there were some hopes this would prove to be mostly bluster by President Donald Trump.

The pan-European STOXX 600 index was last down 0.3%. Other regional indexes also declined, barring the UK’s FTSE 100 .FTSE, which was up 0.4%. MSCI’s broadest index of world shares dipped 0.1%.

Trump on Saturday said he would impose a 30% tariff on most imports from the European Union and Mexico from August 1, even as they are locked in long negotiations.

The EU said it would extend a suspension of countermeasures to U.S. tariffs until early August and continue to press for a negotiated settlement, though Germany’s finance minister called for firm action if the levies went ahead.

German 10-year government bond yields briefly hit their highest since early April on Monday after settling back to 4.63%. Yields move inversely to price.

“To use the biggest cliché in the book, it continues to be a rollercoaster ride for all of us following the trade story, even if the market has increasingly overcome its queasiness and ensured it has been well stocked up on motion sickness tablets,” said Deutsche Bank strategist Jim Reid in a note to clients.

A rise in Japanese government bond yields also added to upward pressure on borrowing costs elsewhere, said Jens Peter Soerensen, chief analyst at Danske Bank. JGB yields surged as concerns grew that an upcoming election could pave the way for increased fiscal spending.

Chinese blue chips closed 0.1% higher as data showed annual export growth topped forecasts at 5.8% in June, even as exports to the U.S. fell almost 10%. Retail sales figures, industrial output and gross domestic product are due Tuesday.

S&P 500 futures and Nasdaq futures both eased 0.4%. Earnings season kicks off this week with the major banks leading the pack on Tuesday.

S&P companies are expected to have increased profits by 5.8% from the year-earlier period, down from an expectation of a 10.2% gain on April 1, according to LSEG IBES.

PRESSURING POWELL

In bond markets, Treasuries got a very marginal safety bid and 10-year yields held at 4.41%. Futures for the Federal Reserve funds rate edged higher as markets priced in a little more policy easing for next year.

While Fed Chair Jerome Powell has signalled a patient outlook on cuts, Trump is piling up political pressure for more aggressive easing.

White House economic adviser Kevin Hassett over the weekend warned Trump might have grounds to fire Powell because of renovation cost overruns at the Fed’s Washington headquarters.

Trump said on Sunday that it would be a great thing if Powell stepped down.

U.S. consumer prices data for June are due on Tuesday and could finally start to show early upward pressure from tariffs, though retailers still have pre-levy inventory to draw on and some companies are absorbing the costs into margins.

The impact on supply chain costs could show in producer price and import price figures this week, while a reading on retail sales will indicate how consumers are faring.

Among currencies, the euro dipped 0.1% to $1.1684, edging away from its recent four-year top of $1.1830. The dollar lost 0.1% on the yen to 147.29 while the dollar index was little changed at around 97.89.

The dollar rose 0.25% against the Mexican peso to around 18.67, with Mexican President Claudia Sheinbaum confident a trade deal could be reached before the August deadline.

Bitcoin crossed the $120,000 level for the first time to reach a top around $123,153.

In commodity markets, gold picked up a modest safe-haven bid and rose 0.1% to $3,359 an ounce. [GOL/]

Oil prices rose over 1% on speculation Trump could announce stiffer sanctions on Russia later on Monday, including levies on major customers buying Russian oil. [O/R]

Any move from Trump wishing to arm Ukrainians more vigorously will find enthusiastic support in Congress, said Christopher Smart, founder and a managing partner of consultancy firm, Arbroath Group.

“In a famously divided legislature, there is overwhelming bipartisan support for a bill that will deliver its own sharp escalation to the conflict,” said a research note by Smart sent Monday.

The legislation threatens 500% tariffs on countries that buy Russian oil, gas, uranium or other exports, said the letter.

Brent jumped 67 cents to $71.03 a barrel, while U.S. crude added 70 cents to $69.15 per barrel.

Reporting by Nell Mackenzie, Wayne Cole; Editing by Christopher Cushing

The EU has so far held off on retaliatory measures to avoid a spiralling tit-for-tat escalation

International News via Reuters:

The European Union and South Korea said on Monday they were working on trade deals with U.S. President Donald Trump that would soften the blow from looming tariffs as Washington threatens to impose hefty duties from August 1.

Trump stepped up his trade war on Saturday, saying he would impose a 30% tariff on most imports from the EU and Mexico from next month, adding to similar warnings for other countries including Asian economic powerhouses Japan and South Korea.

White House Economic Adviser Kevin Hassett said on Sunday that countries’ trade deal offers so far have not satisfied Trump and “the tariffs are real” without improvements to their proposals.

“The president thinks that deals need to be better,” Hassett told ABC’s This Week program. “And to basically put a line in the sand, he sent these letters out to folks, and we’ll see how it works out.”   

European Trade Commissioner Maros Sefcovic expressed optimism that Washington and the EU were approaching a positive outcome for both sides. He warned, however, that a 30% tariff would practically eliminate trade between the U.S. and the 27-nation bloc, which are currently each other’s largest trading partners.

“We continue to engage with the U.S. administration and prioritise a negotiated solution by the new deadline of August 1. I cannot imagine walking away without any effort,” Sefcovic said ahead a meeting with EU trade ministers in Brussels.

German Chancellor Friedrich Merz, meanwhile, issued a stark warning on Sunday regarding the impact of a tariff at that level on the EU’s largest economy.

“If that were to happen, we would have to postpone large parts of our economic policy efforts, because it would interfere with everything and hit the German export industry to the core,” Merz said.

The EU has so far held off on retaliatory measures to avoid a spiralling tit-for-tat escalation in the trade war while there remains a chance of negotiating an improved outcome.

But Italy’s Foreign Minister Antonio Tajani said the EU has already prepared a list of tariffs worth 21 billion euros ($24.5 billion) on U.S. goods if the two sides fail to reach a trade deal.

MARKETS’ MUTED REACTION

Since returning to the White House earlier this year, Trump has sought to use an array of tariffs to boost the U.S. economy, push companies to invest in the United States, and revitalise sectors including manufacturing.

His initial “Liberation Day” tariff announcement in April, which set a baseline tariff of 10% on all imports and higher duties on certain products or countries, raised fears of global supply chain disruptions, sending shockwaves through markets.

But subsequent U-turns and delays, including a 90-day pause on most duties aimed at allowing time for trade deal negotiations, have left investors largely inured to Trump’s chaotic policy roll-outs.

Stocks eased moderately on Monday, while the dollar gained little on the euro.

The impact on European spirits companies, many of which rely heavily on the U.S. market, was also mixed.

Shares in Diageo, whose U.S. business is driven by sales of Canadian whisky and Mexican tequila, rose 1% in early European trade. Rival Pernod Ricard, maker of Jameson Irish whiskey, saw its shares fall 1%, while cognac maker Remy Cointreau dropped 2.4%

SCRAMBLE FOR DEALS

The looming August 1 deadline has set off a scramble by governments around the world to seal trade agreements.

South Korea’s top trade envoy said on Monday it may be possible to strike an “in-principle” deal by the deadline and signalled that Seoul may be open to allowing the U.S. greater access to its agriculture markets, local media reported.

Minister for Trade Yeo Han-koo, who held high-level talks with U.S. officials last week, said South Korea was seeking to avoid “unfair” U.S. tariffs on sectors key to its industrial prowess that would undermine industrial cooperation with its main security ally and trading partner, media reports said.

“I believe it’s possible to reach an agreement in principle in the U.S. tariff negotiations, and then take some time to negotiate further,” the Newsis news agency quoted Yeo as telling local media reporters. 

“Twenty days are not enough to come up with a perfect treaty that contains every detail,” he added.

South Korea is in a race to reach a compromise trade pact in the hope of avoiding a 25% tariff slapped on its exports, the same level faced by Japan.

Additional reporting by Milan Strahm, Cristina Carlevaro, David Lawder, John Revill, Andreas Rinke, Wayne Cole and Emma RumneyWriting by Keith WeirEditing by Joe Bavier