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Weekly Sight Deposits: Investors hedge with Swiss Franc again for the coming inflation cycle.

 

Headlines Week November , 25 2016

We explained the Trump reflation trade, where the Swiss Franc acts as the usual inflation hedge against the obviously inflationary policies of Trumpeconomics.
Trump is about tax cuts – i.e. a fiscal deficit up to 10%, and about protectionism. Trump would restrict global trade and push up U.S. wages.

According to Lars Christensen Trumpeconomics is also about monetary stimulus: Trump would push for a more jobs and a dovish Fed, same as his fellow Republican Nixon did. He could even replace the “hawk” Yellen.

Long-term oriented investors have realized that. They bought Swiss Franc cash as inflation hedge or Swiss Franc pharma stocks that profit on less pharma regulation under Trump .
They got the francs far cheaper than during the coming inflationary cycle, because the SNB sold them at cheap prices. When exactly inflation will start is still open, Bill Bonner asks “Too early for an inflation Bet?”

We see the euro at 0.90 CHF and the dollar at 0.80 – 0.70 CHF during the inflation period, but we are still one or two decades away. (See The two phases of CHF appreciation). During the period of low inflation in between,  both dollar and stocks may improve.

Sight Deposits: The SNB intervenes for 2.9 billion CHF after 4.8 bn. last week. Rising stock markets let her believe that she can earn enough until  the inflation period starts, for us the end-game of  the dollar.

FX: Both SNB and speculators are short CHF.and they are slowly driving the euro towards 1.08.

Euro/Swiss Franc FX Cross Rate, November 28

(see more posts on EUR/CHF, )
Euro/Swiss Franc FX Cross Rate, November 28

. Source: markets.ft.com - Click to enlarge

Speculative Positions

Speculators were net short CHF in January 2015, shortly before the end of the peg, with 26K contracts.

Then again in December 2015, when they expected a Fed rate hike, with 25K contracts.

We see these net short levels reached again this year, maybe even more. Currently we are nearly at 22K contracts. Reason the recently strong U.S. and European PMIs and now the reflation trade, that is positive for the U.S. dollar and U.S. stocks.

Speculative Positions

Choose Swiss Franc for CHF Speculative Position

 

For the full background of sight deposits and speculative positions see

SNB Sight Deposits and CHF Speculative Positions

 

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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