Sorry Jamie Dimon, no stocking stuffer for you from Philipp Hildebrand this year. From JP Morgan:
- We would need to check my records a little more careful but we suspect the SNB has set a new world record with its FX intervention in May. Data released by the Swiss Statistics Office and confirmed to us by the SNB puts intervention at CHF 78.8bn in May (yes, that is the change of reserves, not their level). To put this into perspective, this is nearly three times the previous largest monthly intervention and amounts to 15% of GDP in just one month. Current reserves are now CHF 232bn or 43% of GDP.
- We knew the SNB intervened in heroic quantities to defend the 1.40 level but this figure is way beyond even the most extreme estimates. It is in fact just plain silly, and confirms an FX policy that: 1) has run out of control; and 2) is even more unsustainable than thought. And even should the SNB be reckless enough to want to repeat intervention on this scale, we can be pretty certain that it will only do so on a liquidity-sterilised basis. There is simply no way the SNB is going to conduct unsterilised intervention on this magnitude and very quickly lose complete control of domestic money supply. The fact that EUR/CHF has declined by 10% even though the SNB has sold nearly CHF 190bn, or 35% of GDP, since the spring of last year, is a clear a demonstration that sterilised intervention, for this is what the SNB has done, simply does not work. It is a con-trick, one which the market is learning to look through.
- This data should embolden the market to re-sell EUR/CHF. Many positions were squeezed out in the stop-fest up to 1.45, leaving positions an awful lot cleaner than for some time. We re-sold EUR/CHF in the latest FX Weekly and suspect that now is the time to think about more extreme targets than the rolling 2-3% per quarter depreciation seen over the past year. One-touches in the mid-low 1.20's over the coming year are starting to look a good prospect. We are therefore opening a 1Y EUR/CHF 1.2500 at-expiry digital put, priced at 13% off a 1.3870 spot.