S&P Talks SNB
Ratings agency S&P released a study on the wider impact of the SNB’s intervention policy. The study said the bank may have bought EUR80 bn of core Eurozone bonds in the 7 months to July, a policy which has helped push core Eurozone bond yields lower. While this has been a key theme driving FX markets earlier this summer, it is the first official commentary we have seen on the subject from a ratings agency and may spark some debate on the wider implications of reserve diversification and intervention policy. Speaking on domestic policy, the SNB’s Thomas Jordan said the Swiss franc is still highly valued, but should weaken over time. He echoed previous comments that the central bank has enough ammunition to defend the EURCHF floor, and will enforce it with the utmost determination. USDJPY continues its grind lower, prompting Finance Minister Azumi to warn he stands ready to deal with speculative FX moves as long as he is in office. The comments come in the wake of media reports of a potential cabinet reshuffle over the coming days which could see Azumi replaced as finance minister. In the interim, Azumi is evidently keen to counter perceptions of a vacuum in the decision-making process for FX intervention. He also seemed eager to challenge the view that BoJ easing is now the preferred method for inducing yen weakness, stressing that monetary policy can only impact the yen over the long term. Despite this innovative rhetorical flurry USDJPY remained heavy with Japan’s semi-year-end only days away. San Francisco Fed President Williams explained why the Fed chose a bond buying worth only $40 bn per month – he said the intention was to maximize the size without creating market dysfunction. However he went on to say that the Fed will weigh its options again in December to decide if more easing is required. Our US economics team expects the Twist programme will be replaced at year-end with an additional $45 bn of outright purchases of US Treasurys. Today, ECB President Draghi, SNB President Jordan, and US Treasury Secretary Geithner are due to speak. Also on tap are the July retail sales report in Canada, July S&P/Case Shiller home price index, and September consumer confidence index in the US.
Click here to read the full report: UBS Morning Adviser America
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