SNB: Unlikely To Be Deterred From FX Tools Despite US Monitoring
Jun-06 07:52
- Late yesterday, the US Treasury placed Switzerland on the US currency manipulator "monitoring list" and this morning's SNB reaction statement raises questions on any impact for near-term SNB policy.
- The Trump administration labelled Switzerland a currency manipulator already in 2020 - to which the SNB back than mentioned that their "monetary policy approach remains unchanged". Our view is that barring major retaliation from the US, which appears to not be on the table for now, the SNB would not want to let slip one of their two monetary policy tools.
- However, note that this morning's SNB argument against being a currency manipulator ("does not seek to prevent adjustments in the balance of trade or to gain unfair competitive advantages for the Swiss economy") does not necessarily counter the US's statement last evening ("taking action against currency manipulation and will continue to closely monitor a range of relevant macroeconomic and financial policies [that] result in an unfair competitive advantage in trade" - note the key difference between "does not seek to" vs "result in".
- Thus, we would not be surprised that if the SNB were to curb potential further CHF strength, the US would escalate and label Switzerland a currency manipulator again. Consequences of that might be a firmer trade / tariff stance of the US against Switzerland - the matter appears likely to also be picked up in the ongoing negotiations on a Swiss / US trade deal, which the Swiss economy minster "hopes" to yield results by the beginning of July.
- While ING comments on the developments that "with FX intervention potentially constrained, at the margin it could favour a 50bp rate cut from the SNB on 19 June", market pricing for the upcoming SNB meeting has largely held its hawkish adjustment seen during yesterday's ECB press conference, and now stands at only 1/5 implied odds for an outsized 50bp cut at that meeting (was 1/3 around a week ago).
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EGBS: Citi Flag Global Flow Support For BTPs, Still Wary Of Widening Risk
May-07 07:49
Citi note that “the ongoing tariff de-escalation has taken our tariff hedge trade – 10yr BTP-OAT widener – to its stop this week.”
- They write “the BTP-Bund spread no longer looks rich vs European equities (though it still does vs European credit) and thus should be open to any further risk rally. However, BTP spreads are now back at pre-tariff levels with tariff risks fully priced out, and the pre-tariff hurdle at 100bp likely to come back into play”.
- Overall, they still see “risk-reward tilted towards widening. Having said this, the combination of risk factors has likely contributed to relatively flat positioning in BTPs, with potential for carry longs into summer if tariff de-escalation continues but with a relatively low bar for disappointment on that front”.
- In the meantime, they will keep an eye on “Japan flow data, for whether the new Japanese affinity to BTPs over recent months extended in March. Global portfolio flow data is already showing that 12-month rolling demand for Italian debt (not necessarily all BTPs) is now approaching that of French debt, while Spanish demand remains subdued”.
EURIBOR OPTIONS: Put spread buyer
May-07 07:44
ERK5 97.87/97.75ps, bought for 0.25 in 3k.
BUNDS: Bouncing back to pre Cash Open levels
May-07 07:38
- Bund is slowly edging back to where it was trading at before it sold off 50 minutes before the Cash Open, was trading circa 130.97, at the top of its Overnight range.
- There's hasn't been any real notable flow, nor on the small sell off, or the bounce, Volumes are subdued, as Investors await on the FOMC later Today.
- That initial support area of 130.70/130.75 has still held despite the low 130.66 print Yesterday.
- And as noted on the Bund open, small resistance moves down 131.24.
