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Goldman Does Not See A SNB Hike In 48 Hours, Eliminating Chance Of CHF Snapback On No Hike Announcement

Submitted by Tyler Durden on 09/14/2010 15:24 -0400

Earlier today, news that UBS had expressed the iconoclast opinion expecting the SNB to hike its rate by 25 bps to 50 bps, put the CHF into afterburner mode, inspiring a 100 pip move from the then prevailing level of 1.0030 in the USDCHF, to well below parity. Yet it appears other banks refuse to follow through, in adjusting their expectations. Goldman's Dirk Schumacher has released a note in which the European strategist says: "We expect the SNB to leave its target for 3-month Libor at 0.25% in this Thursday’s Monetary Policy Assessment and the overall tone of the statement to remain broadly unchanged." Oddly enough, it would be far more beneficial for the CHF if everyone did expect a hike, only to cause a snapback in the CHF in case there truly is no announcement. As it is however, the CHF will likely not budge all that much once Thursday news of no change hit (and it already is well linside parity with the USD). On the other hand, should the SNB indeed hike, then watch as the CHF hits all time highs, and Brequet, Patek Philippe and Milka factory workers picket the SNB demanding an accommodative monetary regime (what, you think lazy Americans are the only ones who can do it?)

From Goldman Sachs:

We expect the SNB to leave its target for 3-month Libor at 0.25% in this Thursday’s Monetary Policy Assessment and the overall tone of the statement to remain broadly unchanged. We will be focusing on three things in the statement: the inflation forecast, the discussion of deflationary risks and the language with respect to FX interventions.

The SNB said in its June statement that “the deflationary risk has largely disappeared”. While we expect this part of the statement to remain unchanged, there is a possibility that “largely” will be dropped from the sentence, which would be a hawkish sign.
With respect to the inflation forecast, the crucial thing to watch will be whether the new forecast still shows inflation set to breach the SNB’s 2% target by 2Q2012. Lastly, we expect the SNB to emphasise again that it “would take all measures necessary to ensure price stability”, i.e., it will keep open the option to intervene in FX markets if the Swiss Franc were to appreciate sharply.

What is holding the SNB back from a change in its monetary stance at this point—despite a forceful recovery in the economy—is the still high degree of uncertainty with respect to the short-term outlook. However, medium-term inflationary pressures are building and the SNB risks falling behind the curve. As the recovery in the Euro-zone continues and the liquidity backstops put in place by the ECB and the EU help to alleviate fears of a renewed sovereign debt crisis, the SNB will be able to focus on these inflation risks. We continue to expect the first hike in December.