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Weekly SNB Intervention Update: Sight Deposits and Speculative Position


 

Headlines Week April 24, 2017

 

The centre-left politician Macron will probably win the French elections. This moved the EUR/CHF up to 1.0798, while it reached 1.0830 intra-day.

We will see with next Monday’s sight deposits data, if the SNB continues to intervene – or if higher EUR levels of 1.08 or more can be achieved without interventions.
 

 

 

 

Euro/Swiss Franc FX Cross Rate, April 24

(see more posts on EUR/CHF, )
Euro/Swiss Franc FX Cross Rate, April 24

Source: markets.ft.com - Click to enlarge

 

 

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 – over the long-term – 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.

Intervening at elevated exchange rates – buying 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:
The SNB intervened for 3 bn during the week preceding the French elections; one billion more than in the previous week.

Change in SNB Sight Deposits March 2017

(see more posts on SNB sight deposits, )
Change in SNB Sight Deposits March 2017

Source: SNB - Click to enlarge

 

Two Innings of Swiss Franc Appreciation

Two Innings of Swiss Franc Appreciation

- Click to enlarge

Speculative Positions

Speculators 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 data as of April 18:

The net short CHF position stands at 13K contracts (against USD).

Speculative Positions


Choose Swiss Franc for CHF Commitment of Traders

source Oanda

 

 

Date of sight deposits (+ 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)
21 April 1.0710 1.0734 -13802X125K +3 bn. per week 569.1 bn. 480.6 bn. 88.5 bn.
14 April 1.0683 1.0618 -10128X125K +2 bn. per week 567.1 bn. 480.6 bn. 86.5 bn.
07 April 1.0696 1.0648 US GDP release -13825X125K +2.4 bn. per week 564.1 bn. 476.2 bn. 87.9 bn.
31 March 1.0709 1.0754 Eurozone core inflation only at 0.7% -16392X125K +1.6 bn. per week 561.7 bn. 475.1 bn. 86.6 bn.
24 March 1.0718 1.0786 Fed meeting -11979X125K +2.9 bn. per week 560.1 bn. 476.3 bn. 83.8 bn.

 

Background

FX Rates, Balance of Payments and Capital Flows

At the very basis you should understand that FX rates are driven by the balance of payments for this currency, i.e. by inflows of capital or by not existing capital outflows when the country has a current account surplus. These non-existent outflows are very important for Switzerland, a country with a big trade and current account surplus.  Capital inflows (or non-existent outflows) can be invested in different types of assets like real estate, stocks, bonds, physical cash or in cash on bank accounts.
SNBFX interventions
When investors do not want to buy enough foreign assets for a given (potentially manipulated FX rate), then the central bank might do this instead. This is what we call FX interventions. They are financed with local currency, with the excessive capital inflows or “non existent outflows”. Very often the central bank considers the cash on bank accounts as “excessive”.

As opposed to the Bank of Japan, for example, the SNB buys assets denominated in foreign currency.


Sight deposits

are the equivalent of cash on Swiss bank accounts, when these banks have nothing else to do with this money than giving it to the central bank in the form of “sight deposits of banks”.

They are currently the by far most important means of financing for SNB currency purchases, for interventions. Sight deposits are assets for commercial banks, the Swiss confederation and other counterparties that deposit money at the SNB, but for the SNB they are liabilities, debt.

Sight deposits are always denominated in CHF. The SNB finances itself with Swiss Francs, while its assets are nearly all in foreign currency. When CHF appreciates, then the debt increases more than the assets. The assets lose their value. As consequence the central bank may lose its Owner’s Equity which may result in a central bank bankruptcy or a recapitalization by the Swiss state.
The IMF-compliant weekly monetary data release on the SNB website provides the recent developments in sight deposits. With this weekly delivery it gives an far earlier indication of SNB interventions than the relatively late releases of balance sheet or IMF data.

Currency in Circulation

Currency in the form of bank notes and coins is the second financing method, it represents the “traditional money printing” of central bank debt with the printing press. Nowadays this printing of debt in the form of bank notes is far less important than the electronic printing of SNB debt called “sight deposits”.

Money Printing

is the popular word for unsterilised central bank interventions that – at least for monetarists – paves the way for price inflation. In the following we concentrate on sight deposits as means of money printing, because currency in circulation changes far less than sight deposits. From October 2014 to October 2015, the SNB printed new bank notes of a total of 6 billion CHF but electronic money (sight deposits) rose by 100 billion francs (see the SNB balance sheet).

SNB intervention

 Sight Deposits of Swiss Banks and Other Sight Deposits

Sight Deposits of Swiss banks

They are part of M0, the monetary base: With the money multiplier effect, money on Swiss banks have a higher influence on Swiss lending and inflation. Therefore the two categories are separated. For monetarists, a big rise in Swiss sight deposits would be a bigger issue than the increase of the second item, which is:

“Other Sight Deposits”

are the ones of other counter-parties with an account at the SNB. These include loans from the Swiss confederation and federal authorities like the state pension fund (In German “AHV”). Other counter parties are insurances, private pension funds, settlement agencies, foreign banks, investment companies, hedge funds and foreign central banks and institutions. These other sight deposits are not part of M0, because they are not able to “multiple money” with loans to the public (no money multiplier effect).

Negative Rates on Sight Deposits

Since December 2014, sight deposits above the threshold of around 320 bn. are “punished” with negative rates (20 times more than the minimum reserves, visible in “compliance in %” on the monetary data). The punishment fee is currently 0.75%. Hence by End of November 2015, around 148 bn. CHF are concerned by the negative rates, while the 320 bn. are “exempted”.  Between November 2015 and April 2016, sight deposits increased by 22 bn. . Since the exemption level did not increase, all these 22 bn should be punished by 0.75%. The SNB achieved a profit of 333 million on negative rates only in Q1/2016.

 

The relationship between CFTC speculative position and sight deposits

Example: The data graph shows that real money went long 13.1 billion CHF during the week of Jan 15, 2015, but FX speculators were short CHF by 26444 x 125K contracts. Speculators got ripped off by real money. It is also visible that only in November 2014, the SNB started to intervene: delta sight deposits remained at zero before.


 

Detailed Table

This is the detailed table that shows how the SNB increased its debt and accumulated FX investments. The terms are explained in the sections above.

Weekly SNB Intervention Watch: Sight Deposits

Date
(+ link to source)
avg. EUR/CHF during periodavg. EUR/USD during periodEventsNet Speculative CFTC Position CHF against USDDelta sight deposits
if >0 then SNB intervention
Total Sight DepositsSight Deposits
@SNB from Swiss banks
"Other Sight Deposits" @SNB (other than Swiss banks)
21 April 2017 1.07101.0734-13802X125K+3 bn. per week569.1 bn.480.6 bn.88.5 bn.
14 April 2017 1.06831.0618-10128X125K+2 bn. per week566.1 bn.480.6 bn.86.5 bn.
07 April 2017 1.06961.0648US GDP release-13825X125K+2.4 bn .per week564.1 bn.476.2 bn.87.9 bn.
End March 2017 1.07091.0754Eurozone core inflation only at 0.7%-16392X125K+13.5 bn. per month561.7 bn.475.1 bn.86.6 bn.
End February 2017 1.06481.0570New record in Swiss trade surplus-8936X126K+15.4 bn. per month548.2 bn.470.2 bn.78.0 bn.
End January 2017 1.07181.0725US Q4 GDP only +1.9%-13644X125K+3.8 bn. per month532.8 bn.466.7 bn.66.1 bn.
End December 20161.07281.0467-10091X125K+1.5 bn. per month529.0 bn.466.3 bn.62.7 bn.
End November 20161.07491.0786Election of Donald Trump, Renzi loses referendum in Italy-24334X125K+9 bn. per month527.5 bn.457.6 bn.69.9 bn.
End October, 20161.08391.0920Strong US GDP Release-18700x125K
+1.1 bn. per month518.5 bn.451.9 bn.66.6 bn.
End September, 20161.08911.1230SNB intervenes at end Q3. Speculator follow.-5956x125K
+1.6 bn. per month517.4 bn.452.9 bn.64.5 bn.
End August, 20161.09611.1169Not convincing U.S. jobs numbers, that may delay a Fed rate hike.
+8208x125K
+4.4 bn. per month515.8 bn. 438.7 bn.77.0 bn.
End July, 20161.08681.1058US Q2 GDP only +1.2%
+946x125K
+3.9 bn per month511.4 bn 435.0 bn 76.4 bn
End June 20161.08801.13Brexit: Interventions for 10.8 bn CHF+10867x125K
+13.4 bn per month507.5 bn 430.3 bn 77.2 bn
End May, 20161.10651.1365Reduction in CHF long, smaller SNB interventions+3954x125K
+2.9 bn per month494.1 bn 420.7 bn 73.4 bn
End April 20161.09341.1340Long CHF vs. USD still increasing, SNB intervening at high levels+9410x125K
+7.5 bn per month491.2 bn 423.9 bn 67.3 bn
End March 20161.09291.1142Speculators shift to CHF long after Fed reduced rate expectations+4967x125K
+6.1 bn per month483.7 bn 420.2 bn 63.5 bn
End Feb 20161.10131.1105SNB interventions for 5.1 bn CHF-2321x125K
+5.1 bn per month477.6 bn 418.0 bn 59.6 bn
End Jan 20161.09421.0866Some distortion in sight deposits with the End December "tax effect".-4506x125K
(Short CHF)
+4.8 bn per month472.7 bn 403.1 bn 69.2 bn
End Dec,20151.08281.0900With "dovish" Fed hike, short CHF pos. evaporates, SNB selling+3564x125K- 0.5 bn per month467.9 bn 403.8 bn 64.1 bn
End Nov 20151.08401.0735Speculation about lower Swiss neg. rates: high spec. pos. against CHF-15329x125K+1 bn per month468.4 bn 401.7 bn 66.7 bn
End Oct 20151.08571.1004Draghi threads with more QE, SNB with lower neg. rates+1499x125k
+2.1 bn per month467.4 bn 401.3 bn 66.1 bn
End Sep20151.09221.1237Greek elections and Volkswagen neg. for Euro-2715x125k
+1.4 bn per month465.3 bn 399.1 bn 66.1 bn
End August 20151.081.1250China crisis negative for CHF and pos. for USD (see more)-12597x125k
(CHF short)
+3 bn per month463.9 bn 396.0 bn 67.9 bn
July 17, 20151.04261.0904Deal with Greece achieved+3100x125k
(CHF long)
+0.8 bn each week460.9 bn 396.8 bn 64 bn
End June1.04001.1100Greek Referendum +6900x125k+3.4 bn per month457.9 bn 391.1 bn 66.7 bn
End May 20151.04051.1160Ascent of EUR/USD with rising German inflation+8300x125k+5.5 bn per month454.5 bn 380.5 bn 73.5 bn
End April 20151.031.09Weak US GDP let Euro and CHF rise.+1300x125k+6 bn
per month
449 bn 384 bn 65 bn
End March,20151.06021.0831Euro falls thanks to Greek and Draghi fool game (GR= 1.5% of EU GDP)+706x125k0443 bn 379.3 bn 64 bn
End Feb, 20151.06171.1353Greeks continue fooling Germany-5085x125k
(CHF short)
0443 bn 383.6 bn 59.7 bn
Jan 30, 20151.041.1340Greek crisis again: Run to safety continues-7373x125k+14.8 bn per week443 bn 383.3 bn 59.7 bn
Jan 23, 20150.991.1340Neg. CHF rate of 0.75% introduced-9809x125k+26.2 bn per week428.2 bn 365.5 bn 62.7 bn
Jan 16,20150.99881.1578End of EUR/CHF peg-26444x125k
(before end peg)
+13.1 bn per week402 bn 339.6 bn 62.4 bn
Jan 9,20151.20091.18ECB QE Onset, Brent: 47$-24171x125k2.4 bn per week388.9 bn 329 bn 59.7 bn
End Dec,20141.20201.2099Rouble crisis, Brent: 54$, neg. CHF interest 0.25%-16545x125k16.5 bn per month386.5 bn 327.7 bn 58.8 bn
End Nov, 20141.20261.2436Gold referendum,Brent:69$-23424x125k3.6 bn per month370.6 bn 319 bn 51.4 bn
End Oct, 20141.20281.2525Brent: 84$-20283x125k0367 bn 310 bn 56.4 bn
End Sep, 20141.21151.2632Brent:91$-12557x125k0368 bn 310 bn 58 bn
August, 20141.20601.3128Brent: 101$-13039x125k0367 bn 310 bn 57 bn
July 20141.21501.2832ECB QE Talk taking effect on markets-11764x125k0368 bn 310 bn 58 bn
June, 20141.21581.3596First ECB easing-6813x125k
(CHF spec.pos turns neg.)
0368 bn 301 bn 67 bn
May, 20141.21921.3642+13703x125k0367 bn 304 bn 63 bn
End Q1, 20141.22271.3703Ukraine crisis+14819x125k0368 bn 316 bn 52 bn
End Q4, 20131.23031.3588US recovery despite gov. shut-down+10889x125k0364 bn 319 bn 45 bn
Previous Record High1.20471.2927Nov2012:-3367x..
June2013:-28972x
12 bn per month
total 256 bln. CHF
373 bn
(Nov 2012)
321 bn
(June 2013)
March 16, 20121.20401.3300Temporary low in sight deposits-19812x125k-4 bn (SNB selling Euros) 217 bn 159 bn 58 bn
Dec, 20111.20401.2948Markets perceive higher floor thread-10978x125k-26 bn (SNB selling Euros) 221 bn 180 bn 41 bn
Sept 16, 2011 (first record)1.21551.2940After establishment of 1.20 floor+5400x125k
(CHF long despite floor)
58.4 bn (sept 2011)247.4 bn 206 bn 42 bn
August 20111.181.4379US Downgrade, ECB intervention+9342x125k159 bn (Aug 2011)189 bn 164 bn 25 bn
July 20111.121.4396SNB absorbs liquidity with SNB bills+7877x125k-71 bn (SNB sterilizes via SNB bills) 30 bn
(Thirty)
May/June 20101.401.2306SNB abandons interventions-12810x125k24 bn 101 bn
May 02 20091.51641.41First high during fin. crisis-4922x125k77 bn
Remarks

Italic print: Recent data estimated based on SNB balance

Italic print: Recent data estimated based on SNB balance

Italic print: Recent data estimated based on SNB balance

Full list of Swiss institutions with sight deposits

Italic print: Recent data estimated based on SNB balance sheet of October 2014

 

Headlines After the Trump Election

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.

Headlines October, 2016

Sight Deposits: +1.1 billion CHF

FX: The EUR/CHF is still in the SNB intervention range between 1.08 and 1.0850.

Headlines September 2016

Sight Deposits: +1.6 billion CHF

FX: Unusual price movement caused by SNB Q3 Window Dressing? EUR/CHF rises in one day from 1.0819 to 1.919 by 100 bips.

Dovish Fed, “The case for a hike had strengthened, Yellen said, but still the consensus to hike was not there”. As usual, both EUR and USD depreciated against CHF.

Headlines August, 2016

FX: Not convincing U.S. jobs numbers, that may delay a Fed rate hike.

Sight Deposits: The SNB had to intervene for 4.4 bln.

Headlines July, 2016

FX: US Q2 GDP only +1.2%

Speculative Position: Speculators reduced their long CHF position to 946K contracts.

EUR/CHF at 1.0868 and EUR/USD at 1.1058

Headlines June 04, 2016, After Brexit

Interventions:
The SNB intervenes for 6.3 bn francs in the week ending last Friday, the week one after Brexit.

20% of the interventions into stocks: The SNB has now a 20% equities share, this implies that the bank pumped 2 billion francs in global (non-Swiss) stock markets.

FX: Unexpectedly for us, the SNB raised the intervention level to 1.0850. Apparently the central bank converted GBP->CHF flows into GBP->EUR flows – via EUR/CHF purchases.

Speculators: are long CHF 10K contracts against USD versus 6.3K contracts last week. (CFTC data)

Intervention levels are too high, in particular on dollar purchases

The SNB converts a certain percentage of the inflows into USD to keep up the USD share at around 33%. Dollar purchases at 0.97 CHF are far too expensive in a historical (e.g. 0.75-0.80 CHF in 2011) and future perspective (when global inflation comes back). Similar to the EUR purchases at 1.40 in 2010, dollar purchases at elevated levels of 0.97 can pave the way for a SNB bankruptcy.

Headlines June 20, 2016, Before Brexit

FX: CHF remains strong. Reasons are:

  1. Brexit fears,
  2. the weak US Payroll report and the FOMC reaction to it: U.S rates to remain low for longer
  3. A strong recovery of the Swiss economy, visible e.g. in the Swiss Manufacturing PMI

Sight Deposits: SNB intervenes for 2.6 billion francs.

Speculative position: Speculators switch to long CHF and short USD.

Headlines May 2016

Speculative position: Reduction in CHF Longs against USD:  +3900 compared to +9265 x 125K contracts still at the end of April.
Sight Deposits: SNB intervenes for 2.9 bn. CHF in one month. This is a slow-down against before but still strong.
FX: The EUR/CHF is finally weakening falling downwards from initially 1.11. The dollar has had a strong momentum and rose to 0.98.

Headlines April 2016

Speculative position: Speculators are even longer CHF:  +9410x 125K contracts.
Sight Deposits: SNB intervenes for 6.4 bn. CHF in only three weeks. Sight deposits (aka debt) are rising by 1% per month, this is 12% per year. The SNB can never achieve such a yield on investment. This is the higest level since January 2016. Why the SNB is driving the Swissie so high is a question, given that both real money and speculators are long.
FX: EUR/CHF rose over 1.09 and touched 1.10. The dollar around 0.97 CHF.

Headlines March 2016

Speculative position: Strong shift to CHF long:  +4967x 125K contracts after the Fed reduced their expectations of rate hikes for this year.
Sight Deposits: SNB intervenes for 6.1 bn. CHF during the month of March. This is the higest level since January 2016.
FX: EUR/CHF rose over 1.09 and touched 1.10. As I expected last week, the EUR/CHF was not reached. The dollar is getting slowly weaker, at 0.96 CHF currently.

February 2016

Interventions of 5.1 bn. CHF is very high. The speculative position against CHF was getting smaller and smaller.

January 2016

Interventions +4.8 bn. per month.

Headlines December 2015

End December: The SNB seems to have sold foreign FX, because sight deposits have fallen by 0.5 billion CHF in December. However, many people withdraw cash at the end of year, this reduces sight deposits at Swiss banks and therefore also sight deposits at the SNB. According to the SNB, this is for tax reasons.

The speculative position USD against CHF has evaporated in the meantime. Traders are net long CHF again.

Early December: Height of a speculative position against euro and CHF (short 24K contracts on Wednesday). Draghi disappointed. And logically the speculative position against EUR and CHF started to unwind. For the first time in months, sight deposits fell. The SNB was able sell currency reserves, most probably dollars, while the speculators had to buy francs.

Q&A

Roger: Are there other explanations than interventions for increased sight deposits?

George Dorgan: There are two means of financing for current interventions:

1) Sight Deposits (electronic printing)

2) Bank notes (“traditional” money printing)

So when cash is converted into sight deposits at the SNB, then this may happen without interventions. But sight deposits increase.

Roger: The SNB buys in any case, even if the rate is high. Why?

George Dorgan: Yes you are right. But interventions at too high levels, is a potential risk for SNB’s solvability. But why does she do it?

1) If the SNB sells the EUR/CHF or does not buy at all, then the EUR would move downwards. The bank does not like this.

2) The SNB wants to support the carry trade, the upwards trend of EUR/CHF.

The conclusion is that the SNB will sell euros from a certain level. In an earlier post, I thought they sell at 1.10 but I got wrong, for now…

Remember that the SNB sold euros in early 2012 so that the euro went slowly towards 1.20.

Roger: Is it possible that money isn’t credited to an account instantly but after a few days, right? Last week the deposits increased. This could be because of interventions in the last week or the week before, right? But in the last two weeks the Euro-Franc exchange rate was pretty high.

George Dorgan:

Speculative positions against CHF (CHF short) may be higher than CHF sight deposits (CHF Long). The CFTC position is only a part of the total spec position.  Brokers and foreign banks hedge some of their client EUR long positions with SNB sight deposits or indirectly via Swiss banks like UBS. When and how much they hedge, depends. As January 15th shows, banks are usually not completely hedged.

You might get confused with this answer, read more here why sight deposits can be viewed in two ways, depending who creates them, the central bank SNB or the commercial banks that deposit funds.

 

Older Headlines

Headlines October/November 2015

October/November 2015: As response to Draghi’s QE thread, the SNB threatens to lower rates further. A big speculative position USD long and CHF short is building up.

October 23: Draghi announces that the ECB could continue QE. Logically the EUR/CHF continued its descend and fell under 1.07. The SNB had to intervene for 1.1 bn. CHF.

October 16: EUR/CHF trends downwards, because US rate hike hopes fade after the FOMC. This implies that rate hike hopes for the ECB fade too. Another 600 million CHF of interventions, this time absorbed mostly by other counter parties.

Sight deposits of Swiss banks rise over 400 bn. CHF. This is 36 bn. more than the 365 bn. on January 22 when negative interest rates of 0.75% were introduced. At the time, the existing sight deposits were not paid, but the delta of 36 bn. costs the banking sector 0.75% per year. Hence it reduces income/GDP by nearly 300 million CHF.

Bad US job data: both euro and CHF rise against the dollar, given that the US rate hike might be delayed to 2016.

 

Sight Deposits October

Other sight deposits: the ones of non-Swiss banks, institutions like foreign banks, hedge funds or independent asset managers, are falling again after a quick rise after the US job data. They are nearly unchanged since January 22.

Speculative position USD against CHF: Remains long USD despite bad US job data and fading hopes on a rate hike.

End September: Volkswagen scandal 

EUR/CHF rate: EUR/CHF fell with the Greek elections but the euro is rising again. The Volkswagen scandal may weaken the German trade surplus. We know that Switzerland is a proxy for the German economy. Via trading algos this implies some CHF weakness.

September 21

EUR/CHF rate: When FX speculators hear the word “Greece”, then they often sell euros and buy CHF. That the Greek GDP is only tiny part of euro zone GDP does not matter. According to the CFTC, speculators were long CHF and short USD.

September 7

Strangely EUR/CHF continues its ascent on September 7, despite the ECB threat with more QE.

Until End August

Shortly before January 15th, 2015, the speculative position was at it highest. Remember that all such carry trades – a strong speculative position that counters real money, collapse one day. In our view, the carry trade should continue until EUR/CHF reaches 1.10 or 1.15. The carry trade could run 3 to 5 years, before it should collapse again to EUR/CHF 0.90. Time for the SNB to collect some dividends and coupons to avoid a bankruptcy.

 

July 15th to August, 15th: Sight deposits have risen by 2.5 bn. in the course of one month. But a big speculative position is building up against CHF. Sight deposits do not capture these movements because they are not portfolio investments for the balance of payments. They happen at FX brokers.  But long-term investors still like Swiss stocks.



July 13th: Another 2.1 bn CHF of interventions, a deal with Greece is not yet achieved. Inflows mostly came from local banks  They seem not to fear negative rates. This delta in sight deposits, is probably punished by negative rates. But the SNB seems to be convinced to keep EUR/CHF over 1.04, without considering that many exporters (like pharma and chemicals) take advantage of the stronger dollar.

July 6th: Surprisingly only a small intervention of 1.4 bn. CHF during the Greek referendum week. Reasons might be that the European recovery still avoids inflation. See more in the two phases of CHF appreciation.

June 29th: Greek referendum announced and talks on Greek ended.  According to Forexlive.com, the SNB has intervened. For us, this must have been at the lower area of 1.0312 in Asian trade, but not at 1.04.

June: The pace of SNB intervention is slowing. Sight deposits rise by 0.5 billion francs per week.

April and May: Sight deposits rise by 1.5 billion CHF per week, hence the SNB seems to intervene with a pace of 1.5 billion francs weekly. Recently the SNB increased the loans with the Swiss confederation.

Between Feb 21 and April 3: No major change, no SNB interventions

The biweekly bigger IMF data release will contain infos about money supply, in particular M0, next issue is on May 14th.

The last one, the one for March, is the following:

 

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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Permanent link to this article: https://snbchf.com/snb/interventions-sight-deposits-speculative-positions-chf/

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  1. Newreader

    Hello George,
    thank you for your interesting blog.
    Relating to your “Latest SNB Intervention Update: Weekly Sight
    Deposits” there is one thing I do not understand. What is the interest
    rate on deposits held by commercial banks by the SNB. In other words,
    does it pay the banks to hold money at the SNB or it is better to go to
    the market? Are the SNB’s FX interventions sterilised, if so at what
    rate? Is there any corridor for MM rates in Switzerland? If so what
    rates does it consist of?
    Your response would be very appreciated.
    Kind regards,
    Piotr

  2. GeorgeDorgan

    Sorry for the late response.
    Similar to the Bank of Japan, the SNB has a long tradition of paying zero on its sight deposits, the Fed currently pays a little more.
    With the move into negative rates, sight deposits above a certain threshold must pay negative rates.

    “Better to go to the market” is no alternative, because the LIBOR market is empty. Any Swiss bank has too much money. So if you have money then nobody wants it, even more you must pay to give the money to somebody (negative LIBOR rates).

    FX interventions are not sterilized in the sense that they cannot be used for the multiplier effect, that they may prop up lending. The main method of financing are sight deposits. SNB bills are sterilized, but they do not exist any more since 2011.
    The latest target LIBOR is about -0.75%, but as said everybody has enough liquidity.

  3. rueffallais

    Hello,
    It is very confusing in my mind , those increase of sight deposits are coming from where ?
    These sight deposits are used to maintain the  peg ?
    Thanks for your explanation

  4. Newreader

    GeorgeDorgan 
    Hi,
    thank you for your response. 
    I understand that banks are “over-liquid” and don’t need money for lending or liquidity management.

    But actually I was thinking about such a possibility for arbitrage for banks: to borrow on the market at -0,75% and to deposit with the SNB at 0%?

  5. GeorgeDorgan

    The way is the following:
    1) Wealthy investors like Russian oligarchs or rich Greeks want to save their money against currency collapse or confiscation. Their main scope is typically to preserve wealth
    2) They deposit the money on a Swiss bank account in CHF. This would be a “sight deposit at the Swiss bank”.

    3) The bank does not know what to do with the funds, it does not lend it.
    4) Instead it deposits it at the central bank, the so-called “sight deposits at the SNB.”
    5) The quantity of sight deposits depends on the price of CHF: If CHF is expensive for foreigners then they may choose the dollar instead to save their money. If CHF is cheap like EUR/CHF =1.20 then it is more.

  6. Roger

    It is true that it’s possible that money isn’t credited to an account instantly but after a few days, right? Last week the deposits increased. This could be because of interventions in the last week or the week before, right? But in the last two weeks the Euro-Franc exchange rate was pretty high. Does this mean the SNB buys stuff in any case / even when the Euro-Franc exchange rate is pretty high?
    Another question: Are there other explanations than interventions for increased sight deposits?

    1. George Dorgan
      George Dorgan

      Yes, the SNB buys in any case, even if the rate is high. Why?
      1) If the SNB sells the EUR/CHF or does not buy, the EUR would quickly move downwards.
      2) The SNB wants to support the carry trade, the upwards trend of EUR/CHF.

      1. George Dorgan
        George Dorgan

        Another question: Are there other explanations than interventions for increased sight deposits?

        There are two means of financing for current interventions:
        1) Sight Deposits (electronic printing)
        2) Cash (“traditional” money printing)

        So if cash is converted into sight deposits, then this may happen without interventions.

  7. Anon

    Hope you keep this blog updated, very good information to put through my head

  8. Julien

    Your website is really nice for anyone looking for detailed information on the SNB policy, thanks for keeping it updated.

    I have a question on your post, I found it clever to show the correlation between CFTC Positions and SNB FX interventions, but I don’t find the correlation particularily convincing. Couldn’t one find another variable to “predict” SNB interventions ? To put it differently, isn’t there any others indicator that could help “predict” SNB interventions ?

    Julien

    1. George Dorgan
      George Dorgan

      Sight deposits are the earliest indicator of interventions apart from market chatter.
      Be aware that in most cases there is no correlation of CFTC and sight deposits. The aim of the graph is to show when one should not be short CHF.

      1. Julien

        ok thanks.

        I was thinking from your graph CFTC positions were one of the factors the SNB could look at when deciding to intervene or not, now I get what you wanted to show. Ok for market chatter, thanks.

  9. Niche

    50 year Swiss gov. bond now yielding 0.223%…

    1. George Dorgan
      George Dorgan

      A big part of negative or near-zero yield is the expectance that CHF will be stronger than EUR or USD.

  10. Meier

    SNB now has third-highest FX reserves (China and Japan highest and second-highest. Previously Saudi Arabia was third-highest but its reserves position declined due to the decline in oil prices.

    https://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

    1. George Dorgan
      George Dorgan

      The Wikipedia page could need an update, because they include gold in the Foreign exchange reserves. It is a difference if you own gold or fiat as reserve.

  11. Jeremy

    Hi guys – thanks for the great posts.
    Just wondering when did you change your outlook that things were going to head down (to parity) before they would head back up again?

    Also noting that you had previously mentioned about the bands that the SNB is comfortable where the EUR sits. I.e. 1.068 was at the low end of their comfortable range.
    “Comfortable” due to their assets being mostly denominated in EURs; assets reduce, then relative debt increases.

    Looking forward to understanding

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