Preview of the Swiss National Bank meeting today from Societe Generale, Nomura, Credit Suisse, and Credit Agricole
SocGen (No Cut): We don't expect them to cut rates further this week, because they don't have to. They're luck's in. With EUR/USD above 1.10 there is no pressure to the downside in EUR/CHF. In January the market was (very) short CHF and building a short EUR position that wasn't yet very big. That was a recipe for pressure on the floor to build and at the same time, for a huge move once the floor was broken. Now, the market is more balanced, and Euro shorts are being reduced, not built. A rate cut may still be necessary in due course, because the inability of the Swiss financial system to re-cycle excess savings post-GFC hasn't been resolved, but judging by how unpopular it would be with pension providers, let alone Joe Public, there's a good chance they do nothing, and that EUR/CHF holds comfortably above 1.0750 and within the recent range.
Credit Suisse (Cut): Our view is that the SNB will still cut this Thursday, most likely by 25bp to -1.00bp. Although Draghi did not deliver to market expectations, our Swiss Economic Research team still believes that it will be important for the SNB's credibility to respond to the ECB cut, especially when domestic data are so weak. The SNB has itself fueled expectations of a cut by insisting that it introduced the negative interest rate to "partially restore the traditional differential between interest rates on EUR and CHF.
Credit Agricole: (No Cut) Last week's disappointment by the ECB should have decreased pressure on the SNB to turn more aggressive on monetary policy. It must be remembered too that SNB Vice Chairman Zurbruegg just recently stressed that interest rates around the current levels are appropriate. Even if the still overvalued franc keeps monetary conditions tight to the detriment of price developments a large part of weak inflation should be due to external factors such as weak commodity price developments. As the SNB has no influence on commodities and as EUR/CHF has been broadly stable of late, we see little scope of them announcing additional stimulus measures this week. Elsewhere it must be noted that capped liquidity expectations, as driven by the ECB, may make a case of risk sentiment turning more unstable towards the end of the year. This could increase safe haven demand for the franc against high yielder such as the AUD.
Nomura: (No Cut) As EUR/CHF continues to trade above 1.06 by a good margin, we don't expect any further easing from the SNB at its December meeting this week. We expect the Bank to keep its dovish bias at the meeting, and to keep its "wait-and-see" stance for now. The market disappointment around the ECB has lowered expectations for the SNB, but expectations for further rate cuts still exist, albeit not a full 25bp cut, based on rate pricing. The possibility of a small rate cut to match the ECB's 10bp deposit rate cut cannot be ruled out, but the SNB is unlikely to over-deliver relative to the current market pricing next week. Therefore, the SNB could also disappoint the market as the ECB just did, and we see upside risks for CHF against USD and EUR going into the meeting. However, into 2016, we expect CHF to weaken against both USD and EUR. Therefore, any renewed CHF strength around the SNB meeting could provide good levels for fresh CHF shorts,