The Swiss National Bank held rates steady today at 25 basis points and yet the Swiss currency found the policy statement to be bullish. The market read the release as a softening of the Swiss bank’s stance on intervening to weaken the Swiss Franc againt the EURO. The head of the SNB, Philipp Hildebrand, noted that tensions in the finacial markets and the fiscal crisises in the World “have increased the downside risks to the economy.” He added,
“Should those downside risks materialize and, via an appreciation of the Swiss Franc, lead to a renewed threat of deflation,the SNB would take all the measures to ensure price stability.”
We want to advise our readers that the Swiss will go to an extreme to prevent the Swiss Franc from gaining too much against the EURO for that is its main trading partner. Back in the late ’70s and early ’80s, the Swiss government went so far as to put a negative interst rate on foreign bank accounts. To stem the flow of foreign money into the safe haven of Switzerland, depositors had to pay 2 percent. So while we always respect market action and believe the Swiss has some very positive fundamentals, being long Swiss is not riskless.
A bigger positive for the FRANC was more probably the lower house of the Swiss Legislature signing on to the agreement with the U.S. regarding information sharing on tax avoidance. Rather than blocking the tax-sharing agreement and forcing a referundum, the issue now gets put to rest. The Swiss franc has already paid a price for the newest crimp in Swiss secrecy laws, but now that it is over the Swiss will have gotten first mover advantage and now other TAX Havens will move to the forefront.
The Spanish bond markets rallied as the auction went better than expected. The yields were lower on the 10-year Spanish note then had previously prevailed in the market and the bid to cover was 2.45. The auction helped put a bid to the EURO and also aided some of the peripheral Euro bond markets to rally versus the German Bund.
Another story out of Europe is that Spain plans to release the upcoming results of its bank stress tests. This is creating controversy as other European nations are opposed to the release of bank stress tests for they believe it will result in misinterpretation and market turmoil. Ambrose Evans-Pritchard wrote that the Spanish are in favor of this disclosure because it will embarrass German banks who are under more stress than the Spanish banks and will back Merkel and the German financial community into a corner. Deutsche Bank CEO Josef Ackermann said last week in Vienna that releasing the stress tests would be “very very dangerous” unless there was a mechanism in place to support the distressed banks that came under attack. While the Germans have been pointing their fingers at the PIIGS, it may well be that the German and/or French Banks have more DEBT problems than the much-maligned sovereigns. This story will keep unfolding so we advise all to keep it on your radar screens.
Tags: Angela Merkel, Debt, Euro, Franc, Philippe Hildebrand, PIIGS, SNB, Swiss Franc
June 17, 2010 at 5:49 pm |
It was reported ““Spain raised nearly euro3.5 billion ($4.3 billion) in an oversubscribed sale of bonds”.
Oversubscribed?
No sane person would buy Spanish bonds right now.
That leaves the ECB as the one who purchased the bonds.
When will this nonsense stop.
June 17, 2010 at 9:58 pm |
Jill–when will it stop –never as long as they can spend public money to try to prove they are right and and they will go far .The History of the world is of politicos attempting to impose their ill-conceived plans on an unwilling populace–and the EU is another example