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Thursday, January 15, 2015
Swiss National Bank unleashes hell storm. Ends peg against the euro. Euro collapses. Swiss franc surges against dollar. Gold up.
The Swiss National Bank abruptly decided to end the peg against the euro this morning. That caused the euro/swiss exchange rate to plummet from 1.22 to 1.03 in an instant. Look at the chart below. (This is a weekly chart that goes back to 2009!)
The dollar lost eight months worth of gains against the swiss franc in seconds. Gold is higher. All markets will feel the impact of this today. I said big currency moves were coming in 2015. For those of you who didn't take my Forex course, you lost out big time!
The moves in the globex futures markets were pretty disorderly even though interbank markets continued normally. Followed by strange moves in all the other big trend-theme trades in ALL other futures contracts. I suspect our HFT boys got their balls squeezed or someone got margin calls, I'm curious if we hear about any failures in the next few days. Futures market making is now done by poorly capitalized and lightly regulated non-banks so... who knows. LTCM all over again?
“Words fail me,” Swatch Chief Executive Officer Nick Hayek said by e-mail. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.” (From Bloomberg)
Swiss banks take foreign denominated and chf deposits and make loans in chf and foreign so its hard to guess what their exposure is. You can't look at fx reserves at the SNB to guage the banking system foreign leverage by their reserves either because Jordan has used the peg and accumulated massive reserves.. all a black box to me
How long then before the CBs get their chains yanked by the government once the export sector lobbyists start complaining and the disastrous figures start coming in?
I'm hearing some idiots claiming this was a "capitulation" and "proof that intervention always fails." This is utter bullshit. The move today by the SNB was a POLICY CHANGE that happened not to be telegraphed beforehand to the market. The SNB could have continued selling francs and buying euro forever, but it decided to change course.
The Mar 15 Chf contract on Globex volumes: 3:30 am - 9,361 contracts 3:35 am - 337 contracts 3:40 am - 506 contracts
3:45 am - 60 contracts 3:50 am - 163 contracts
As 4am approached, better volumes started to come back. Epic market fail to clear. So the CME is doubling margin requirements at 4pm today and tripling them tomorrow... lol after it is all over. Crazy day.
Yesterday, if a member bank went in to the Swiss CB with some Euro balances and wanted to exchange them with the CB for francs, the CB would have given them 1.23 francs....
Now today, the CB will only give the members 1.03 francs?
So the Swiss CB is now getting a better deal for Euro balances it exchanges with its members?
Yesterday they had to pay f1.23 now today they only have to pay f1.03?
Getting ahead of all the Euro "debasement" that starts next week with the ECB QE?
"We're not going to continue to pay f1.23 for debased Euros!.... we want a better deal for the Swiss taxpayers!"
The Swiss are known for being ultra-fiscally conservative and traditionally gold bugs. The prospect of ECB QE freaked them out. It's just not in their playbook. The suddenness of the change in policy and lack of "forward guidance" was probably a message to the ECD and eurocrats that the Swill bankers "have not lost their minds" like the Fed, the BoJ, and now, it appears, the ECB.
Rolf again negative equity in central banks being a possibility freaks them out!!!! We will hear "credibility" word in the next days for sure, and talks about how governments and central banks are power less.
World run by complete MORONS and free-market anarchists. Matt Franko was right all the time, this pretty much confirms it.
The moves in the globex futures markets were pretty disorderly even though interbank markets continued normally. Followed by strange moves in all the other big trend-theme trades in ALL other futures contracts. I suspect our HFT boys got their balls squeezed or someone got margin calls, I'm curious if we hear about any failures in the next few days. Futures market making is now done by poorly capitalized and lightly regulated non-banks so... who knows. LTCM all over again?
ReplyDeleteThat's the Swiss export sector UTC then.
ReplyDeletePerhaps I was wrong suggesting that mutually assured economic destruction was unlikely.
Unfortunately the ships are all piloted by idiots.
ReplyDelete“Words fail me,” Swatch Chief Executive Officer Nick Hayek said by e-mail. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country.”
(From Bloomberg)
Would decrease the external liabilities of the Swiss insurers?
ReplyDeleteIe any Euro denominated liabilities at the insurers just got reduced by 20% or so in chf terms?
Sucks for the Swatch guy.... they dont care..
Have to workout the banking side... in terms of what the insurers bankers saw.
Neil do they 'export' a lot of insurance products to the eurozone from Switzerland?
ReplyDeleteSwiss banks take foreign denominated and chf deposits and make loans in chf and foreign so its hard to guess what their exposure is. You can't look at fx reserves at the SNB to guage the banking system foreign leverage by their reserves either because Jordan has used the peg and accumulated massive reserves.. all a black box to me
ReplyDeleteThose exported insurance products have liabilities priced in Euros and premiums prices in Euros. Profits are marked in Chf.
ReplyDeleteCould be looking at a massive down day in the euro, across the board. #swissfranc #swiss #euro #EURCHF #dollar #USDCHF #SNB
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteMike in their own minds they probably think they can go "bankrupt" or "lose money"....
ReplyDeleteTheyre just like the Fed "gotta get a good deal..."
This reminds me of the sudden move by the Russia CB a few weeks ago when they raised the USD swap rate to 17% and a 62 basis over night...
the CBs are protecting their "equity"..... might be able to front run this with access to the right data....
rsp,
How long then before the CBs get their chains yanked by the government once the export sector lobbyists start complaining and the disastrous figures start coming in?
ReplyDeleteI'm hearing some idiots claiming this was a "capitulation" and "proof that intervention always fails." This is utter bullshit. The move today by the SNB was a POLICY CHANGE that happened not to be telegraphed beforehand to the market. The SNB could have continued selling francs and buying euro forever, but it decided to change course.
ReplyDeleteThe Mar 15 Chf contract on Globex volumes:
ReplyDelete3:30 am - 9,361 contracts
3:35 am - 337 contracts
3:40 am - 506 contracts
3:45 am - 60 contracts
3:50 am - 163 contracts
As 4am approached, better volumes started to come back. Epic market fail to clear.
So the CME is doubling margin requirements at 4pm today and tripling them tomorrow... lol after it is all over. Crazy day.
Ryan, what was the volume yesterday as in, who knew?
ReplyDelete52,683 yesterday, 41.4k on the 12th which is only slightly higher than normal but not extraordinary.
ReplyDeleteWeek before averaged 40k per day
So do I have this correct:
ReplyDeleteYesterday, if a member bank went in to the Swiss CB with some Euro balances and wanted to exchange them with the CB for francs, the CB would have given them 1.23 francs....
Now today, the CB will only give the members 1.03 francs?
So the Swiss CB is now getting a better deal for Euro balances it exchanges with its members?
Yesterday they had to pay f1.23 now today they only have to pay f1.03?
Getting ahead of all the Euro "debasement" that starts next week with the ECB QE?
"We're not going to continue to pay f1.23 for debased Euros!.... we want a better deal for the Swiss taxpayers!"
rsp,
http://www.snb.ch/ext/stats/statmon/xls/en/statmon_A3_1_M1.xls
ReplyDeletethey have been building up huge forex reserves over the years no problems... check out the excel file above...
They had $33B equivalent back in 1999 now they are up to $500B or so....
They just got tired of paying 1.23 looks like.... wanted"a better deal" probably...
rsp,
The Swiss are known for being ultra-fiscally conservative and traditionally gold bugs. The prospect of ECB QE freaked them out. It's just not in their playbook. The suddenness of the change in policy and lack of "forward guidance" was probably a message to the ECD and eurocrats that the Swill bankers "have not lost their minds" like the Fed, the BoJ, and now, it appears, the ECB.
ReplyDeleteRolf again negative equity in central banks being a possibility freaks them out!!!! We will hear "credibility" word in the next days for sure, and talks about how governments and central banks are power less.
ReplyDeleteWorld run by complete MORONS and free-market anarchists. Matt Franko was right all the time, this pretty much confirms it.
Please stop the world I want to get off!