Headlines Week March 20, 2017
Euro/Swiss Franc FX Cross Rate, March 20(see more posts on EUR/CHF, )
SNB sight deposits
Swiss private investors do not export their massive trade surplus with purchases assets in foreign currency, apparently because valuations of stock markets are too high and bond rates are too low still.
As consequence the SNB intervenes and takes the risk that private investors do not want. With this measure she either risks its bankruptcy or she deviates from its mandate to avoid inflation. The last time she realized that was in January 2015, when the peg broke.
We should remind that the EUR/CHF is clearly higher than the 0.90 that we expect in a couple of years – in the case of a combination of inflation and recession.
Swiss inflation is rising quite quickly now. See the last Swiss inflation data.
Intervening at elevated exchange rates – euros at 1.08 or dollars at 1.00 – is risky. It obliges the SNB to accumulate owners’ capital – for example with dividends and coupons. Thinking that stock markets will always go up, is an illusion.
Last week’s data:
At EUR/CHF around 1.650, she spent 4 to 5 bn. CHF per week. At 1.07 she wants to throw only 2 bn. on the market.
Change in SNB Sight Deposits February 2017(see more posts on SNB sight deposits, )
Two Innings of Swiss Franc Appreciation
Speculative PositionsSpeculators were net short CHF in January 2015, shortly before the end of the peg, with 26.4K contracts. Then again in December 2015, when they expected a Fed rate hike, with 25.5K contracts.
The biggest short CHF, however, happened in June 2007, when speculators were net short 80K contracts. Shortly after, the U.S. subprime crisis started. The carry trade against CHF collapsed.
The reverse carry trade in form of the Long CHF started and lasted - without some interruptions - until the peg introduction in September 2011.
In mid 2011, the long CHF trade became a proper carry trade - and not a reverse carry trade anymore - because investors thought that the SNB would hike rates earlier than the Fed.
Last week’s data:
As we expected, speculators reduced their net Euro shorts after the less dovish ECB.
But the net short of CHF nearly remains stable.
|Date of data (+ link to source)||avg. EUR/CHF during period||avg. EUR/USD during period||Events||Net Speculative CFTC Position CHF against USD||Delta sight deposits if >0 then SNB intervention||Total Sight Deposits||Sight Deposits @SNB from Swiss banks||“Other Sight Deposits” @SNB (other than Swiss banks)|
|17 March||1.0726||1.0699||-8997X125K||+1.8 bn. per week||557.2 bn.||470.9 bn.||86.3 bn.|
|10 March||1.0722||1.0587||-10016X125K||+2.1 bn. per week||555.4 bn.||467.4 bn.||88 bn.|
|03 March||1.0662||1.0569||Swiss Q4 GDP weaker than expected||-11814X125K||+5.1 bn. per week||553.3 bn.||471.4 bn.||81.9 bn.|
|24 February||1.0648||1.0570||New record in Swiss trade surplus||-8936X126K||+4.7 bn. per week||548.2 bn.||470.2 bn.||78.0 bn.|
|17 February||1.0648||1.0613||Improving Swiss consumer climate||-11484X125K||+4.5 bn. per week||543.5 bn.||468.0 bn.||75.5 bn.|
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