Tbh, we thought this one would just go away.
But no, on November 30 there’s to be a vote in Switzerland which, if won, would shackle the Swiss National Bank by forcing it, amongst other things, to hold at least 20 per cent of its assets in gold; to repatriate any gold stored abroad; and to refrain from selling any gold in future.
From SocGen’s Sebastian Galy:
According to Goldman, the answer is sooner than the market thinks. A new note argues that the Swiss franc is already overvalued against the euro, which should give the Swiss National Bank cover to raise rates in response to a vibrant domestic economy and an overheating housing market.
Thanks to a history of low inflation, institutional stability, and (until recently) a long tradition of banking secrecy, money tends to flow into Switzerland when people are worried, and it flows out when investors are looking to take more risk. Between the 2007 low and the peak in the summer of 2011, the trade-weighted franc appreciated by nearly a third as savers in the euro area worried about the collapse of the single currency. Read more
Beat Siegenthaler, FX strategist at UBS, has been wondering about what the Swiss National Bank may do if the ECB’s measures to weaken the euro begin to test its 1.20 EURCHF floor.
He notes, for example, that there has already been a marked divergence between the EURCHF and the USDCHF:
Governments need to reform their labour markets, reduce taxes that weigh on business, free companies from red tape and continue to repair their public finances. Merely talking about such reforms is not enough…QE would merely enable governments to borrow even more cheaply, giving recalcitrant politicians an easy way out.
[...] Read more
Not many people seem bothered by France’s overnight downgrade by Moody’s. The euro shrugged and French bond yields crept upwards at a snail’s pace.
But one place the downgrade might have a real and lasting impact is within the Swiss National Bank. They have a predilection for core eurozone bonds and the downgrade might just prompt them to ditch what holdings they have and/or stop loading up on French debt.
An interesting nugget from Nomura’s Geoffrey Kendrick on the Swiss National Bank data released earlier, as it pertains specifically to sterling:
On GBP specifically we estimate that SNB buying accounted for two-thirds of all non-resident buying of gilts in Q3.
So much for the one sided debate about the Swiss National Bank’s bond purchases. JP Morgan’s Flows and Liquidity team argued over the weekend that while it is true that FX reserves are absorbing a significant part of the supply of high-quality AAA/AA bonds , they are still taking up less than half of the issue. And significantly reserves managers are big participants in securities lending… which includes the SNB.
Ok, in combination with Alice Ross and James Mackintosh we did a very back of the envelope calculation comparing the S&P’s figure with that suggested by the SNB’s methodology (they did not give a figure). Read more
Image by Neal Fowler
That’s the Swiss franc floor abiding, unchanged at SFr1.20 despite the recent rumour mongering. Read more
There is plenty of chatter out there about the Swiss franc floor being raised (and just as it celebrates its first birthday party too).
Nobody we have talked to has any actual idea if Jordan et al at the Swiss National Bank will kick the floor up (with SFr1.22 the likely spot if they do) and most don’t see them actually doing it . Read more
It can’t be much fun being an Australian in London at the moment. (Trailing the Brits is one thing, but lagging the Kiwis in the medal table must really hurt.)
But at least our antipodean visitors can afford to indulge in a little retail therapy at Westfield Stratford City (the Australian dollar is trading close to a record high against the British pound) or, if they are really embarrassed, hop on the Eurostar to Paris (where the dollar hit a record high against the eurothingy just last week). Read more
Switzerland is the new China and it owns a cake, some of which it just doesn’t find all that appetising. (We admit this might be getting confusing but there is method to our madness.)
The Swiss National Bank has pledged to hold the euro-Swiss franc exchange rate at SFr1.20 no matter how many euros come flying its way (Chinese style currency manipulation.. or, at least, it was) while building up a stack of unwanted euro denominated assets which it has to try and shift via diversification (into a cake of many ingredients rather than a cake made entirely of icky euro). Read more
How many reserve assets does it take to screw a Swiss franc into a euro-sized peg?
Answer: this much (so far): Read more
First a chart courtesy of Kit Juckes over at SocGen:
This is the Swiss franc and the euro over the past year:
From the Swiss National Bank this morning:
The Swiss National Bank (SNB) will maintain the minimum exchange rate of CHF 1.20 per euro and will enforce it with the utmost determination. It remains prepared to buy foreign currency in unlimited quantities for this purpose. Even at the current rate, the Swiss franc is still high. Another appreciation would have a serious impact on both prices and the economy in Switzerland. The SNB will not tolerate this. If necessary, it stands ready to take further measures at any time. Read more
First things first, Switzerland is the new China. It is busy manipulating its currency’s value via an explicit floor — essentially, it will step in and buy as many euros as it has to keep the franc at a level above SFr1.20 per euro — and is accumulating awkward assets as it goes.
Second things second, such a mantle is expensive to wear… and getting more expensive. According to the Swiss National Bank their foreign exchange reserves increased from SFr238bn in April to a record high of SFr304bn in May: Read more
The Swiss have made it abundantly clear that they will defend the 1.20 floor against the euro no matter what:
After EURCHF had been so boring for so long — the euro spiked against the Swiss franc on Thursday:
Swiss franc traders have been pretty bored of late, with the euro/Swiss franc flatlining for months. But it seems they’ve had some rare excitement this week: someone out there is buying as many euros against the franc as traders care to offload.
Naturally, everyone is assuming this buyer is the SNB — in disguise. Read more
The euro is flirting with the Swiss National Bank’s floor at pixel time…
… might it be time for something (relatively) new? One question that keeps on popping up is, what is stopping Japan from adopting a currency peg a lá the Swiss National Bank? If repeated easing seems to have no real effect why not get explicit?
Essentially, there is little chance of an explicit floor being put in place due to: Read more
The Swiss boson is a hypothetical condition which is supposed to account for why the Swiss franc has ‘mass’ when all other neighbouring currencies don’t.
A multi billion-euro experiment, operated by BERN (but funded outright by tax payers), is currently under way on the borders of Switzerland and the Eurozone to try and stamp out the asymmetries, ideally by creating something known as the ‘anti-franc’. Read more
Thomas J. Jordan, vice chairman of the governing board of the Swiss National Bank, has made some interesting comments about last week’s sub 1.20 Swiss franc trade against the euro:
What precisely occurred last Thursday? Within just a few seconds, the euro/Swiss franc exchange rate fell from 1.2020 to 1.2000. Despite SNB offers placed in the trading systems, a few isolated transactions occurred below CHF 1.20 per euro. However, at no time did the best available euro exchange rate in the market fall below the minimum exchange rate of CHF 1.20. Thus, for a short time, what is known as a segmented market could be observed, in which transactions below the best price were concluded. This situation was remedied within very few seconds, however, by means of arbitrage. Read more
There’s been some exciting action in the CHF/EUR cross in the last few minutes:
The independence of the Swiss National Bank risks being compromised due to political pressure following the departure of Philipp Hildebrand as chairman, the central bank’s acting chairman has warned. Mr Hildebrand resigned last month after it emerged that his wife had conducted controversial foreign exchange trades shortly before the SNB intervened to weaken the franc last September. The bank has come under domestic political pressure over the potential cost of interventions, Thomas Jordan, the acting chairman, told the FT. Mr Jordan, who is also the bank’s vice-chairman, however insisted that the central bank’s policy operations remained stable and it was committed to defend the ceiling it had set for the franc.
The Swiss National Bank, battered by the resignation of its chairman this week, provided politicians and shareholders with some comfort on Friday by announcing a preliminary profit of SFr13bn (€10.74bn) for last year, the FT reports. The SNB, whose earnings have swung wildly since 2010 because of the soaring Swiss franc, said it expected gains on foreign currency positions of about SFr8bn. A further SFr5bn would stem from profits based on revaluing upwards its large holding of gold bullion. The SNB gave no breakdown of the gains on its foreign exchange holdings, which have ballooned on the back of its market interventions to limit the rise of the Swiss franc. The bank had late last year hinted at gains on its large stock of foreign currencies after the decision in September to set a ceiling for the franc against the euro sharply lowered the Swiss currency’s value.
Kasyha Hildebrand, the wife of former SNB chief Philipp Hildebrand, explained on Swiss National television on Wednesday night that the currency deals which ultimately cost her husband his job were her idea, apologising to the nation. She told the Swiss broadcaster: “What breaks my heart is that his credibility is now being stained.” “There was an error of judgment. He should have never let me do that transaction, and upon reflection, that transaction should have been reversed.” Philipp Hildebrand stepped down on January 9 saying he couldn’t prove conclusively that the purchase of $504,000 was initiated by his wife rather than himself, says Bloomberg. The Swiss National Bank (SNBN) imposed a franc ceiling of 1.20 versus the euro on September 6 to protect the economy, sending the single currency and the dollar higher. Hildebrand also linked the original transaction to the sale of the family’s chalet. Regarding whether the couple had been targeted for a personal vendetta, she said “one person did make a very interesting comment: Blocher might have a lot of money behind him, but we have God.”
A key email between Philipp Hildebrand, the former chairman of the Swiss National Bank, and his financial adviser was seen by neither the central bank’s governing council nor auditors investigating his financial dealings, the FT says. The investigation formed the basis for a statement by the central bank’s council in December clearing Mr Hildebrand of any wrongdoing. Following his resignation on Monday, Mr Hildebrand released correspondence between him, his wife Kashya and Felix Scheuber, their adviser at Bank Sarasin, a private Swiss bank. Some of the exchanges had been made available to the central bank and PwC for use in the internal investigation. However, an email in which Mr Schueber countered Mr Hildebrand’s claim that he was unaware of his wife’s plans to buy dollars was not provided to the central bank until January 5.