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UBS' Take On The Swiss Shocker: "The SNB's Standing Is Undermined... There Could Be A Significant Deflationary Shock"
From UBS' Beat Siegenthaler:
No more floor
The SNB today dropped the 1.20 EURCHF floor while at the same time lowering the negative interest rate on sight deposits to -0.75% from -0.25% previously, as well as moving the 3m Libor target to between -0.25% and -0.75%. The SNB argues that the floor was an exceptional and temporary measure that 'protected the Swiss economy from serious harm' but that the economy had had time to adjust to the new situation. It continues to argue that the franc had recently depreciated 'considerably' against the dollar. 'In these circumstances, the SNB concluded that enforcing the minimum exchange rate for the Swiss franc against the euro is no longer justified'.
Dramatic market impact
The announcement has had a dramatic impact on markets with EURCHF initially dropping 40% to almost 0.85. It quickly reversed seemingly with the help of SNB interventions at levels just above parity to the euro. The statement noted that 'if necessary' the central bank will 'remain active in the foreign exchange market to influence monetary conditions'. The SMI equity index dropped by more than 8% on the news and has recovered little since. On the rates side cross currency basis moved around another 20bp lower.
Economic repercussions
It would seem likely that today's decision will have significant ramifications in Switzerland as very few observers expected the floor to be dropped with some arguing that it looked set to remain in place for years. Unless EURCHF was to recover back to levels much closer to the old 1.20 floor, the economy could be significantly impacted, as seems well reflected in the reaction of equity prices. At levels close to parity many businesses and investment decisions might not be seen as viable anymore and over time a significant volume of economic production could move outside the country. If so, there could be a significant deflationary shock possibly not too dissimilar to the one Switzerland might have suffered had the floor not been introduced in 2011.
Hope of a limited drop
Where will EURCHF settle after today? The big question is whether investors will want to buy Swiss francs despite substantially negative interest rates and at clearly expensive levels. Nevertheless, safe haven flows have so far demonstrated a remarkable stickiness which can be expected to continue as long as global risk aversion reigns. The SNB might be hoping to be able to stabilise EURCHF at around 1.10 which may be deemed a level that the economy can cope with. However, defending such a level might still be quite costly assuming that global risk aversion continues to linger.
Credibility cost
The other question is about the cost of today's decision for the SNB, both in monetary and credibility terms. The SNB is holding roughly half of their CHF500bn in euros, which implies a loss of possibly not dissimilar to the CHF38bn that the SNB made in profit last year. The monetary impact might thus be manageable. The credibility impact might be harder to gauge though. Domestically, many economic actors relied on what was seen as a 'promise' to hold the 1.20 floor. Internationally, following the negative rates confusion back in December today's decision might be further undermined the standing of the SNB among investors.
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WHHHHAAAAH!!
http://builtwith.com/zerohedge.com
too many adds and tracking
If this had been the Feral Reserve they would have lowered the peg by a penny every month and reversed themselves halfway through the process.
So UBS (or in newspeak read "Your BS") is worried about SNB's credibility after having pegged the SF to the Euro as opposed to have bought gold to inject SF into the banking system (Ahem....) and is now worried about their "P&L", an entity that creates fiat money out of thin air?
Fuck UBS
Transmutate this.
"Domestically, many economic actors relied on what was seen as a 'promise' to hold the 1.20 floor.Internationally, following the negative rates confusion back in December today's decision might be further undermined the standing of the SNB among investors."
Or maybe it will have the opposite effect. The Swiss have actually adjusted to circumstances. This is a first in months of this bullshit. Trying to maintain stasis in such a rapidly changing environment is stupid. It is way better to cut your losses than hang on into a hurricane. The Swiss are smart enough and conservative enough to take the "small" loss rather than go down with the ship. I don't think this will be lost on investors.
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https://addons.mozilla.org/en-US/firefox/addon/adblock-plus/?src=collect...
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BetterPrivacy takes care of the longterm flash cookies.
Everything in Europe now green. Ignore the clutter.
Well , the Swiss Gold Vote got them what they wanted.
(Swiss) Youngsters alway have to learn the hard way ... through (bad) experience.
Just like everyone else, apparently.
If their holdings are half and half their position is symmetric and by definition NEUTRAL...
Yes a Central bank goes back to zero....there will be winners and losers....if they keep making quality products..they will sell...always....but a big move for some bankers...I would like to know why...and why now??? what info they are reading.
Exactly, from 2007 to 2011, EURCHF went from 1.67 to parity, and Swiss companies kept making money all the way down. Why? Because they kept making good products, and were forced to maintain a high standard of product while producing efficiently. This has been the case since the 1970's really, the Swiss Franc has been a one way move higher, and the Swiss economy hasn't imploded. If anything the SNB is at fault because their actions prevented this move from happening over a 3.5 year period instead of happening over 3.5 minutes.
Agree--combined with the fact that the SNB seems to be making a bet against the euro and in favor of the dollar.
It's layed down by the underground.
- January 14: ECJ
- January 22: Draghi/QE
- January 25: Greece elections
A lot of shit hitting the EURO-fan. They calculated that the CHF-printing presses couldn't run fast enough to hold the 1.20, so they decided to give up beforehand.
Plus with negative rates what everybody seems to be doing is shoving the freshly printed bills directly into their safety deposit box or their safe at home. Running out of bills would have been embarrasing...
PS: Jordan looked really really nervous in the live press conference. He had quite a red face as well and was stuttering a lot. He probably didn't expect that it would go all the way down to 85 Rappen / Euro... That was quite a cliff....
http://venturebeat.com/2015/01/12/this-usb-wall-charger-secretly-logs-ke...
Polish Banks Slide With Zloty as Swiss Franc-Mortgage Costs Jump - Bloomberg
Polish banks had 131 billion zloty ($35 billion) of Swiss-franc mortgages in their portfolios as of Nov. 30, amounting to 46 percent of all home loans, according to data from the country’s financial market supervisor. Poles and other Eastern Europeans rushed for cheaper funding in francs and euros in the run-up to the global financial crisis in 2008, only to see their borrowing costs surge due to currency swings.
The proportion of Swiss-franc loans, which was at more than 60 percent at the end of 2009, has been falling after non-zloty home loans were first limited and then banned in Poland.
credibility - You keep using that word. I do not think it means what you think it means. [/Inigo Montoya]
I smell a big problem with the Euro looming. Big enough for the Swiss to walk away and let the dust settle.
Unrleated news, but OIL is on the verge of a new uptrend
Goldman is losing more money that Gartman this year already.
The SNB basically admitted that they are incapable of controlling economic fundamentals with a printing press.
That this is considered a 'loss of credibility' tells you everything you need to know about the economic hivemind that dominates the large western economies.
If you didn't know anything else about this situation, the fact that large exporters and megabanks like Unlimited BS are crying over it means it is a positive development.
Does this mean central banks don't have your back............I'm deeply shocked :-0
Or there's a slow motion bank run in europe going on and the demand for "anything but fucking euros" will continue going strong.
"Or there's a slow motion bank run in europe going on and the demand for "anything but fucking euros" will continue going strong."
and a "run on the banks" today means a run on gold, because they can always print more money and make rates more negative, but they can't conjure up gold at a whim.
Be's careful there now man. You speakem tooo much truthem.
A central bank that does not flush its own currency loses "credibility", says the bank that just lost several hundred billion speculating in the FX market with other people's money.
Toblerone...the next Hostess Twinkie.
Gonna stack'em in my freezer for when the diabetic goons will pay $300 a bar.
Significant deflationary shock. Makes sense. But not to the experts at CNBC:
"The move was part of a strategy to fight deflation, said Marc Chandler, global head of markets strategy at Brown Brothers Harriman."
Worse than idiots...
Gartman: Swiss made worst central bank decisionGartman - 'the SNB didn't give anyone any warning'.
You don't say!
Perhaps it would have been better if they'd announced last week that 'the peg would be abolished at 9am one week from today'. Then everyone could have leisurely eased out of their positions and re-aligned themselves.
What a mug.
Gartman lost his ass. Why am I not surprised? His opinion is as worthless as his bank account. The Swiss never should have started that peg.
No shit sherlock! Sounds like oil is working its way thorugh the machinery of corrupt bankers. Sure hate it for 'em.
Gartman means they didn't phone him to get it ok'd