SNB: Deutsche Bank: Policy Tools Now Becoming Clear
Jun-17 12:17
- This rate hike will come as a considerable surprise to the domestic market in particular, where expectations for any policy change today had been minimal going into this meeting.
- Second, and perhaps even more important, the SNB made explicit the change in its FX policy stance we have been highlighting over the last six months.
- The policy statement and especially remarks in the press conference signal a shift to a "two-way" intervention policy, with an explicit readiness to sell down FX reserves in case of an unduly weakening Swiss franc. Effectively, the SNB has put an official cap on EURCHF. This cap remains unquantified for now but in our view should be assumed to be around 1.05.
- Combined with the large rate hike, the signal to the market is even clearer than it has been in recent months: the SNB now desires a stronger Swiss franc. The rationale is clear: to prevent the transmission of excessive inflation from the Eurozone.
- The tools are also now clear: coming out of negative rates as soon as possible and potentially drawing down the $1 trillion pile of FX reserves on the balance sheet. In our view, the bullish signal for CHF could hardly be clearer. We remain long against both USD and EUR and GBP.
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US TSYS: Repo Reference Rates
May-18 12:14
- Secured Overnight Financing Rate (SOFR): 0.80%, $977B
- Broad General Collateral Rate (BGCR): 0.80%, $366B
- Tri-Party General Collateral Rate (TGCR): 0.80%, $352B
- (rate, volume levels reflect prior session)
MARKET INSIGHT: What to Watch: Housing Data, Fed Speak, Weaker Stocks
May-18 11:59
FI trading weaker, off midmorning London session highs after multiple Block sales in 5s (-30k in 5k lots) and 10s (-28k mostly 5k lots). Current levels near lows on decent volumes (TYM2 just over 420k), curves mildly mixed after Tue flattening (2s10s +.452 at 28.403, 5s30s -.113 at 1.812) short end moderating after pricing in additional rate hikes by year end Tuesday.
- Economic data on tap at 0830ET
- Housing Starts (1.793M, 1.756M); MoM (0.3%, -2.1%)
- Building Permits (1.870M rev, 1.820M); MoM (0.30% rev, -2.7%)
- Scheduled FED speakers:
- Philly Fed Harker economic outlook, text and Q&A at 1600ET
- US Tsy auctions:
- $17B 20Y Bond auction at 1300ET (912810TH1)
- $34B 52W bill auction at 1130ET (rolled over from Tuesday)
- Eyes on weaker stocks: US retail giant Target's miss on EPS and weaker guidance is dragging stock futures lower. Target is now down 17% premarket; it had been an outperformer this year, down 7% this year as of Tuesday vs -26% for the S&P consumer discretionary index.
- Geopol risk: 'SWE Should Not Expect NATO Membership w/o Returning Terrorists': Turkish President Recep Tayyip Erdogan speaking to the parliamentary group of his Justice and Development Party (AKP) on Sweden and Finland NATO applications.
- Meanwhile, No Movement In Peace Talks w/Ukraine: Wires carrying comments from the Kremlin spox Dmitri Peskov. States that there are 'no movements in peace talks with Ukraine'.
CANADA: Wide Range To CPI Forecasts (0830ET)
May-18 11:34
- Bloomberg consensus has headline CPI unchanged at 6.7% Y/Y in April but there is another wide range to the survey of 6.3-6.9% (including across primary dealers).
- Two of the three core measures are seen rising 0.1pps but the average is unchanged at 3.8% Y/Y on rounding (having increased 100bps since Oct). We watch to see if there are further upward revisions as in recent months.
- Some renewed disruptions could have pushed goods inflation higher but watch CPI-common as an indicator of underlying service strength.
- Scotia on used cars: StatCan will issue a technical paper outlining methodological plans and timing of including used vehicle prices in CPI but it won’t be included in the April CPI estimates. The most likely scenario is that prices will be incorporated going forward without including them in historical revisions, capturing the eventual deceleration in used vehicles prices.
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