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Swiss National Bank FX Assets Explode In Failed Intervention Attempts To Tame Swiss Franc
The SNB has released provisional data indicating FX investments on its balance sheet have exploded by 50% in just the last month, to CHF 232 billion from CHF 153 billion, is indicative of a rate of FX intervention in the market more than double the prior record set in April! All this has occurred as the SNB has tried to keep the EURCHF above 1.40. It has now officially failed at this attempt, as the Euro just hit a fresh all time low against the Franc of 1.3763. Furthermore, recent market talk indicates that the SNB will no longer directly intervene in the pair, thus confirming that there is likely much more room for CHF appreciation in the near term, and more pain for Eastern European countries, where the bulk of real estate bubble borrowing has been denominated in CHFs. In the meantime the side effects of consistent SNB intervention are hard to miss: the Swiss balance sheet has increased to 3 times its pre-2009 average. Unlike the US, it is not loaded up with toxic GSE filth but merely with currencies increasingly backed by such filth, such as euros.
Some more commentary on this recent balance sheet escalation from Goldman Sachs:
Another record on FX interventions
BOTTOM LINE: Provisional data released today show that the level of FX investments on the SNB's balance sheet at the end of May rose from CHF 153bn to CHF 232bn. This is a 51%mom increase and, needless to say, represents a volume of FX intervention around 2½ times the record just set by the April release. These data are only provisional, and subject to revision, but whatever the eventual level, it is clear that - with the CHF continuing to appreciate strongly amidst the European financial market turbulence - the SNB will have intervened at truly unprecedented levels in May. It is equally clear that the size of the SNB's balance sheet has become precarious: assuming today's preliminary release is not modified, the value of total assets on the SNB's balance sheet has swollen to almost 3 times its pre-2009 average. We have written before on both (i) the financial risk run by the SNB in pursuing this strategy of intervention, and (ii) how unsustainable the current rate of intervention is.
1. These data for May are only provisional. They are released, for a subset of line items on the SNB's balance sheet, on the website of the Federal Statistical Office. The confirmed level of foreign-currency investments on the SNB's balance sheet in May will be published on 21 June in the usual Monthly Statistical Bulletin.
2. Today's three data releases epitomise the SNB's current dilemma - the real economy continues to show signs of strength, while the downward move in May core inflation reinforces the SNB's concerns regarding the risk of an outright deflation. Yet the stratospheric level of outstanding FX reserves on the SNB's balance sheet underline the fact that the central bank's room for manoeuvre on the FX-side of policy accommodation gets smaller by the month.
3. That said, as long as the funding conditions for peripheral countries of the Euro-zone remain severely strained in financial markets, the SNB is unlikely to change either its tone or its stance at the next quarterly monetary policy meeting on 17 June. We continue to expect the first hike to take place in December.
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Wow. Thanks for posting this Tyler. I posted the question yesterday what side effects would come from central bank currency ramp jobs. So, if I am getting this correctly, if the Euro continues to decline this could really decimate the Swiss central bank balance sheet?
WoW !!!! For weeks it has been obvious that the SNB was virtually the only bid on the EUR but this is well beyond my guesstimate of their accumulation. Forget about free markets, the SNB is the market.
Was the market, it seems. Who now will step into the breach?
Gravity
My name is Wile E. Coyote, Super Bag Holder.
My name is Barry O'Bama and I represent the ACME Lighter-than-air self-rescue angel wing division...and have I got a deal for you, Mr. Coyote!
THAT explains it. Saw some determined selling earlier tonight a couple times, was wondering what was up.
So, the cat's out of the bag. Now that it's official, we're shocked. Shocked. That the Swiss are such 'currency manipulators'.
I reckon that certain parties are going to push the notorious 1.35 'line in the sand' next. If they do it too soon, we may see more EUR buyers than just the Swiss. Reckon we're still good to revisit 1.38 at least once more this session...still got stock markets to keep up, and options expiries upcoming, oh and Asian banks lurking with nice safety bids at lower levels to make sure the fall doesn't happen too fast.
Wonder what the FX is going to look like next year? Will the EURUSD still be the major pair?
And ECB reserves are lower as they lend out the USD borrowed, sorry "swapped", from the Fed. Maybe the SNB can lend to the ECB....
Good stuff Tyler.
Wow the boots really are piling up on the euro's neck, and fast, or should I say they did pile up fast, and the value of the euro sank just as fast.
that's not even a hockey stick...that's a wall
That appears PARABOLIC..........
Power Curve...
This could spell bad news for the Swiss banks
as a good number of the real-estate loand
in Eastern Europe were written in Swiss francs
Read somewhere 60% of all loans and mortgages in Hungary are denominated in EUR and CHF.
As far as I am aware those loans are denominated in Swiss Francs but the majority of which are not held by Swiss banks. Austrian banks seem to be the most likely culprits.
So the Euro is backed by "toxic GSE filth" which the SNB buys with Francs which are backed by Euros which are backed by "toxic GSE filth"?
The central bankers could just shove their heads up their own arses to effect the same result.
Shush! You are not supposed to state the obvious. Verboten.
Ho. Ly. Shit. And I thought the Swiss were smarter than this.
What ever gave you that impression?
Let's see:
1) Make it clear that when the market falls below a certain level, you will buy as much as it takes no matter the price, no matter how often, to bring it back to that same level.
2) Float your currency, then kill its market with continual price-fixing.
3) Using your own money.
Smart like a typical central bankster, I guess. Hasn't this been sort of tried before...has anyone enriched themselves trying to control a market?
(Not sarcastic, really asking. The answer looks obvious from logic but I don't know. Just going by logic I'd say no-one in the central banks looks at all smart, which may mean I'm missing something.) :-)
The calculus may be political and not purely monetary.
A country of 7 million surrounded by 500 million people in floundering economies must account for them.
I must be missing something because I don't understand why the Swiss would want to surpress their currency against the Euro. Are they trying to protect their export companies or is it a deeper issue?
Exports. Tourism. Price deflation. Most of the mortgages in East Europe denominated in CHF. (East Europe mortgages fail --> East Europe banks fail --> West Europe banks fail --> UK & US banks fail.)
For starters. :-) Basically if the EUR fails too fast, it's a helluva big deal. And up to now the Swiss were the 'volunteers' setting the floor under it.
(Heard the saying? If you're not a victim, you're a volunteer....)
Ah, I see, that makes sense. Man, everything seems to trace back to mortgages. Thanks for the explanation!
Isn't this also a result of all that European capital flooding into Switzerland, buying francs with Euros?
That's logical but if it were the case, I don't think we'd see such extreme upticks and the charts would show a more orderly upward trend.
very good data thanks
Well, hellooooo there again, Switzerland.
Hah, finally the "new economy" of the 90's dot.com fame went mainstream. This chart (and many others) are now resembling the financial forecasts I did for several now defjunked start ups. Only difference is that in the 90's equity prices were as vertical as the revenue "forecasts"
Looks like a Bilderberg decision...
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