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SNB interventions June 2015

Summary:
Overview: Sight deposits are currently the by far most important means of financing for SNB currency purchases, for interventions. Sight deposits are assets for commercial banks, the Swiss confederation and other counterparties that deposit money at the SNB, but for the SNB they are liabilities, debt.Sight deposits are always denominated in CHF. The SNB finances itself with Swiss Francs. With a rising CHF the debt relative to assets gets bigger, because the assets lose their value. As consequence the central bank may lose its Owner’s Equity that may lead to a bankruptcy or a recapitalization by the Swiss state. The IMF-compliant weekly monetary data release on the SNB website provides the recent developments in sight deposits. With this weekly delivery it gives an far earlier indication of SNB interventions than the relatively late releases of balance sheet or IMF data. Currency in circulation (bank notes and coins) is the second financing method, it represents the typical “money printing” of central bank debt. Nowadays this “bank notes printing” is far less important than the electronic printing of debt called “sight deposits”. Printing is the popular word for unsterilised central bank interventions that – at least for monetarists – paves the way for price inflation.

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Overview: Sight deposits are currently the by far most important means of financing for SNB currency purchases, for interventions. Sight deposits are assets for commercial banks, the Swiss confederation and other counterparties that deposit money at the SNB, but for the SNB they are liabilities, debt.Sight deposits are always denominated in CHF. The SNB finances itself with Swiss Francs. With a rising CHF the debt relative to assets gets bigger, because the assets lose their value. As consequence the central bank may lose its Owner’s Equity that may lead to a bankruptcy or a recapitalization by the Swiss state. SNB interventions June 2015The IMF-compliant weekly monetary data release on the SNB website provides the recent developments in sight deposits. With this weekly delivery it gives an far earlier indication of SNB interventions than the relatively late releases of balance sheet or IMF data. Currency in circulation (bank notes and coins) is the second financing method, it represents the typical “money printing” of central bank debt. Nowadays this “bank notes printing” is far less important than the electronic printing of debt called “sight deposits”. Printing is the popular word for unsterilised central bank interventions that – at least for monetarists – paves the way for price inflation. SNB interventions June 2015 Further definitions: Sight Deposits of Swiss banks:  They are part of M0, the monetary base:With the money multiplier effect, money on Swiss banks have a higher influence on Swiss lending and inflation. Therefore the two categories are separated. For monetarists, a big rise in Swiss sight deposits would be a bigger issue than the increase of the second item, which is: “Other Sight Deposits” of other counter-parties with an account at the SNB.Inside the monetary data release these include loans from the Swiss confederation and federal authorities like the state pension fund (In German “AHV”). Other counter parties are also insurances, private pension funds, settlement agencies, investment companies, foreign banks, foreign central banks and institutions. These other sight deposits are not part of M0, because they are not able to “multiple money” with loans to the public (no money multiplier effect). Since December, sight deposits above a certain threshold are “punished” with negative rates. Weekly SNB Intervention Watch: Sight Deposits Date(+ link to source) avg. EUR/CHF during period avg. EUR/USD during period Events NEW: Speculative CFTC Position CHF against USD Delta sight depositswhich is actually SNB intervention Total Sight Deposits Sight [email protected] from Swiss banks "Other Sight Deposits" @SNB from Non-Swiss cpties September 18, 2015 1.0969 1.1327 Greek Elections +3782x125k(CHF long) 0.7 bln. per week 465.0 bln. 402.2 bln. 62.7 bln. September 11, 2015 1.0938 1.1242 Euro rises vs. USD and CHF despite QE thread -6896x125k 0.4 bln. per week 464.3 bln. 398.2 bln. 66.0 bln. September 04, 2015 1.0850 1.1157 ECB threatens more QE -8503x125k 0 463.9 bln. 395.0 bln. 68.9 bln. End August 2015 1.08 1.1250 China crisis is negative for CHF and pos. for USD (see more) -12597x125k(CHF short) +3 bln.per month 463.9 bln. 396.0 bln. 67.9 bln. July 17, 2015 1.0426 1.0904 Deal with Greece achieved +3100x125k(CHF long) +0.8 bln.each week 460.9 bln. 396.8 bln. 64 bln. End June 1.0400 1.1100 Greek Referendum +6900x125k +3.4 bln.per month 457.9 bln. 391.1 bln. 66.7 bln. End May 2015 1.0405 1.1160 Ascent of EUR/USD with rising German inflation +8300x125k +5.5 bln.per month 454.5 bln. 380.5 bln. 73.5 bln. End April 2015 1.03 1.09 Weak US GDP let Euro and CHF rise. +1300x125k +6 bln.per month 449 bln. 384 bln. 65 bln. End March,2015 1.0602 1.0831 Euro falls thanks to Greek and Draghi fool game (GR= 1.5% of EU GDP) +706x125k 0 443 bln. 379.3 bln. 64 bln. End Feb, 2015 1.0617 1.1353 Greeks continue fooling Germany -5085x125k(CHF short) 0 443 bln. 383.6 bln. 59.7 bln. Jan 30, 2015 1.04 1.1340 Greek crisis again: Run to safety continues -7373x125k 14.8 bln. 443 bln. 383.3 bln. 59.7 bln. Jan 23, 2015 0.99 1.1340 First week after end of peg -9809x125k 26.2 bln. 428.2 bln. 365.5 bln. 62.7 bln. Jan 16,2015 0.9988 1.1578 End of EUR/CHF peg -26444x125k(before end peg) 13.1 bln. 402 bln. 339.6 bln. 62.4 bln. Jan 9,2015 1.2009 1.18 ECB QE Onset, Brent: 47$ -24171x125k 2.4 bln. 388.9 bln. 329 bln. 59.7 bln. End Dec,2014 1.2020 1.2099 Rouble crisis, Brent: 54$ -16545x125k 16.5 bln. 386.5 bln. 327.7 bln. 58.8 bln. End Nov, 2014 1.2026 1.2436 Gold referendum,Brent:69$ -23424x125k 3.6 bln. 370.6 bln. 319 bln. 51.4 bln. End Oct, 2014 1.2028 1.2525 Brent: 84$ -20283x125k 0 367 bln. 310 bln. 56.4 bln. End Sep, 2014 1.2115 1.2632 Brent:91$ -12557x125k 0 368 bln. 310 bln. 58 bln. August, 2014 1.2060 1.3128 Brent: 101$ -13039x125k 0 367 bln. 310 bln. 57 bln. July 2014 1.2150 1.2832 ECB QE Talk taking effect on markets -11764x125k 0 368 bln. 310 bln. 58 bln. June, 2014 1.2158 1.3596 First ECB easing -6813x125k(CHF spec.pos turns neg.) 0 368 bln. 301 bln. 67 bln. May, 2014 1.2192 1.3642 +13703x125k 0 367 bln. 304 bln. 63 bln. End Q1, 2014 1.2227 1.3703 Ukraine crisis +14819x125k 0 368 bln. 316 bln. 52 bln. End Q4, 2013 1.2303 1.3588 US recovery despite gov. shut-down +10889x125k 0 364 bln. 319 bln. 45 bln. Previous Record High 1.2047 1.2927 Nov2012:-3367x..June2013:-28972x 256 bln. CHF (2012/03 to 2013/12) 373 bln.(Nov 2012) 321 bln.(June 2013) March 16, 2012 1.2040 1.3300 Temporary low in sight deposits -19812x125k -4 bln. (SNB selling Euros) 217 bln. 159 bln. 58 bln. Dec, 2011 1.2040 1.2948 Markets perceive higher floor thread -10978x125k -26 bln . (SNB selling Euros) 221 bln. 180 bln. 41 bln. Sept 16, 2011 (first record) 1.2155 1.2940 After establishment of 1.20 floor +5400x125k(CHF long despite floor) 58.4 bln. (sept 2011) 247.4 bln. 206 bln. 42 bln. August 2011 1.18 1.4379 US Downgrade, ECB intervention +9342x125k 159 bln. (Aug 2011) 189 bln. 164 bln. 25 bln. July 2011 1.12 1.4396 SNB absorbs liquidity with SNB bills +7877x125k -71 bln . (SNB sterilizes via SNB bills) 30 bln.(Thirty) May/June 2010 1.40 1.2306 SNB abandons interventions -12810x125k 24 bln. 101 bln. May 02 2009 1.5164 1.41 First high during fin. crisis -4922x125k 77 bln. Remarks Italic print: Recent data estimated based on SNB balance Italic print: Recent data estimated based on SNB balance Italic print: Recent data estimated based on SNB balance Full list of Swiss institutions with sight deposits Italic print: Recent data estimated based on SNB balance sheet of October 2014 Headlines and Comments The following headlines are added each week. They reflect the movement in the table above. September 21: Greek elections EUR/CHF rate: When FX speculators hear the word “Greece”, then they often sell euros and buy CHF. That the Greek GDP is only tiny part of euro zone GDP does not matter. Hence one day before the elections,the EUR/CHF fell to 1.09, the EUR/USD was down 0.7%. Speculative position USD against CHF:With the Greek elections, speculators went long CHF against USD after being short CHF for the whole August and September. Sight Deposits: Total sight deposits rose by another 0.7 billion CHF after 0.4 bln in the previous week.The following tendency continued since August: Foreign and other type of institutions (e.g. hedge funds) remove sight deposits. But the Swiss banks increase sight deposits. Their clients are risk-averse and like to keep CHF cash. Hence the banks are obliged to pay 0.75% interest for this increase of sight deposits. Q&A Roger: Are there other explanations than interventions for increased sight deposits? There are two means of financing for current interventions:1) Sight Deposits (electronic printing)2) Bank notes (“traditional” money printing) So when cash is converted into sight deposits at the SNB, then this may happen without interventions. But sight deposits increase. Roger: The SNB buys in any case, even if the rate is high. Why? Yes you are right. But interventions at too high levels, is a potential risk for SNB’s solvability. But why does she do it? 1) If the SNB sells the EUR/CHF or does not buy at all, then the EUR would move downwards. The bank does not like this.2) The SNB wants to support the carry trade, the upwards trend of EUR/CHF. The conclusion is that the SNB will sell euros from a certain level. In an earlier post, I thought they sell at 1.10 but I got wrong, for now…Remember that the SNB sold euros in early 2012 so that the euro went slowly towards 1.20. Roger: Is it possible that money isn’t credited to an account instantly but after a few days, right? Last week the deposits increased. This could be because of interventions in the last week or the week before, right? But in the last two weeks the Euro-Franc exchange rate was pretty high. George Dorgan: Speculative positions against CHF (CHF short) may be higher than CHF sight deposits (CHF Long). The CFTC position is only a part of the total spec position.  Brokers and foreign banks hedge some of their client EUR long positions with SNB sight deposits or indirectly via Swiss banks like UBS. When and how much they hedge, depends. As January 15th shows, banks are usually not completely hedged.You might get confused with this answer, read more here why sight deposits can be viewed in two ways, depending who creates them, the central bank SNB or the commercial banks that deposit funds. Older Headlines September 7 Strangely EUR/CHF continues its ascent on September 7, despite the ECB threat with more QE. Until End August Important! The speculative position against CHF continues to rise, while sight deposits indicate that – net real money moves into CHF and that the SNB intervenes to counter the inflows. The term Net Real Money indicates current account surplus minus capital account outflows (see the balance of payments background). Capital account outflows are non-FX money – like cash, equities and bonds. Shortly before January 15th, 2015, the speculative position was at it highest. Remember that all such carry trades – a strong speculative position that counters real money, collapse one day. In our view, the carry trade should continue until EUR/CHF reaches 1.10 or 1.15. The carry trade could run 3 to 5 years, before it should collapse again to EUR/CHF 0.90. Time for the SNB to collect some dividends and coupons to avoid a bankruptcy. July 15th to August, 15th: Sight deposits have risen by 2.5 bln. in the course of one month. But a big speculative position is building up against CHF. Sight deposits do not capture these movements because they are not portfolio investments for the balance of payments. They happen at FX brokers.  But long-term investors still like Swiss stocks. July 13th: Another 2.1 bln CHF of interventions, a deal with Greece is not yet achieved. Inflows mostly came from local banks  They seem not to fear negative rates. This delta in sight deposits, is probably punished by negative rates. But the SNB seems to be convinced to keep EUR/CHF over 1.04, without considering that many exporters (like pharma and chemicals) take advantage of the stronger dollar. July 6th: Surprisingly only a small intervention of 1.4 bln. CHF during the Greek referendum week. Reasons might be that the European recovery still avoids inflation. See more in the two phases of CHF appreciation. June 29th: Greek referendum announced and talks on Greek ended.  According to Forexlive.com, the SNB has intervened. For us, this must have been at the lower area of 1.0312 in Asian trade, but not at 1.04. June: The pace of SNB intervention is slowing. Sight deposits rise by 0.5 billion francs per week. April and May: Sight deposits rise by 1.5 billion CHF per week, hence the SNB seems to intervene with a pace of 1.5 billion francs weekly. Recently the SNB increased the loans with the Swiss confederation. Between Feb 21 and April 3: No major change, no SNB interventions The biweekly bigger IMF data release will contain infos about money supply, in particular M0, next issue is on May 14th.The last one, the one for March, is the following: SNB interventions June 2015   See more for Featured SNB
George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

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