CHF: Focus Remains On External Drivers Until Swiss CPI
Aug-22 09:38
EURCHF has printed lower lows for a fourth consecutive session as the corrective pullback off mid-August highs continues. Today’s US jobless claims data and Powell’s appearance at Jackson Hole on Friday (1000ET/1500BST) provide points of interest here - and more hawkish than expected outcomes could bring the prevailing trend of a weaker greenback / lower yields to a halt, which might yield some pushback on the recent CHF strength.
- CHF's status as a funding currency remains the key driver, underpinned by CHF's co-movement with the JPY during recent market turbulence. This leaves initial focus on external drivers - particularly as the Swiss calendar provides little input until the next CPI release on Sept 3rd, however we expect focus to shift to the Sept 26 SNB meeting thereafter, for which around 32bps of easing are priced.
- Levels to watch on EURCHF remain 0.9440, the 38.2% retracement for the upleg off 0.9211 - the multi-year low, and 0.9575, the August 15 high, around which the crossing of the 50/200DMAs supported the move lower afterwards.
- On SNB intervention risk, analyst views appear a bit mixed: Goldman Sachs have recently noted some potential intervention "curbing CHF strength during the market turbulence" of early August, while JP Morgan rather saw a "lack of major pushback from the SNB" re Franc strength. That being said, intervention risk at current levels of around 0.9481 appear limited.
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BONDS: Gilts Underperform Bunds Again, Schatz Supply Eyed
Jul-23 09:37
Gilts underperform Bunds across the curve this morning, as markets continue to assess the chances of the BoE holding rates at next Thursday’s meeting.
- Gilt futures are -7 at 97.87, after finding support around 97.63 (July 11 low) at the open.
- Bunds meanwhile have rallied ~35 ticks from the intraday low (131.71) to retrace yesterday’s post-settlement selloff, currently +12 at 132.05.
- The German and UK cash curves have bull steepened today, with the UK 2s10s operating just off last Friday’s YtD steeps.
- The 0.125% Mar-39 index-linked Gilt auction was mixed, though had little impact on non-linker Gilt pricing. Meanwhile Germany sold E5bln of the new 2.70% Sep-26 Schatz.
- ECB VP de Guindos hinted at September as a more “convenient” meeting to make decisions compared to July, but did not shift market pricing.
- The remainder of today’s calendar is light, with markets focused on tomorrow’s flash PMI releases and the BoC decision.
GERMAN AUCTION RESULTS: New 2.70% Sep-26 Schatz
Jul-23 09:32
| 2.70% Sep-26 Schatz* | Previous | |
| ISIN | DE000BU22064 | DE000BU22056 |
| Total sold | E5bln | E4.5bln |
| Allotted | E4.096bln | E3.646bln |
| Avg yield | 2.73% | 2.80% |
| Bid-to-offer | 1.61x | 1.93x |
| Bid-to-cover | 1.97x | 2.39x |
| Average Price | 99.925 | 100.174 |
| Low acc. Price | 99.920 | 100.170 |
| Pre-auction mid | 100.168 | |
| Previous date | 25-Jun-24 |
EU-RUSSIA: Response To EU Seizing Tranche Of Russian Assets 'Will Be Harsh'
Jul-23 09:24
Russian state media carrying comments from Foreign Ministry spox Maria Zakharova. Says that should the EU seize any tranche of Russian assets currently held frozen in European accounts or platforms, then 'the Russian Frederation will respond very harshly'.
- The comments come after European Commission High Representative for Foreign Affairs and Security Policy Josep Borrell confirmed after the 22 July Foreign Affairs Council meeting of EU foreign ministers that "On the windfall profits, I updated Ministers on progress towards the first transfer of €1.4 billion expected to happen at the beginning of August – next week. We are set to finance the acquisition of priority military equipment – once again, air defence, ammunition for artillery – and also, and this is new, procurement for the Ukrainian defence industry."
- Borrell and Zakharova are referring to EU plans to use windfall profits on EUR210bn of frozen Russian assets, primarily held at Belgium's Euroclear, to fund Ukraine's military resistance and rebuilding through the European Peace Facility.
- Earlier in July, Zakharova stated that “Our country has significant amounts of Western funds and property that are under Russian jurisdiction—all of this may be subject to Russian retaliatory policies and retaliatory actions. Of course, no one will disclose the nature of these retaliatory actions to you. But the arsenal of political and economic countermeasures is wide.”
- Foreign Policy reports that "Foreign assets worth around $194 billion are still in Russia. Of these assets, $32 billion worth are owned by U.S. companies, while $90 billion belong to European companies"
