Take Five: A trillion-dollar problem

FILE PHOTO: FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed stock graph
U.S. one dollar banknotes are seen in front of displayed stock graph in this illustration taken February 8, 2021.
REUTERS/Dado Ruvic/Illustration


It’s tough being the Swiss National Bank: After months of battling safe-haven inflows, markets want to know what the SNB will do with its 914 billion-Swiss franc ($984 billion) foreign exchange pile at its March 25 meeting.

With the franc depreciating 5% and 2.5% versus the dollar and the euro respectively year-to-date, there is no pressure to stem inflows. The pace of interventions has already fallen sharply.

Some of the franc weakness can be traced to recovery bets, but it comes at a time when Swiss bond yields are trading unusually above their German peers, global conditions are still uncertain and vaccine rollouts bumpy. Signalling a reduction in its balance-sheet size could trigger a rise in the franc, something policymakers would be careful to avoid.

The SNB is expected to keep rates unchanged -0.75%, the lowest in the world, and maintain its interventionist stance.


Following a rather muted response to rising Treasury yields so far, the dollar could be woken from its slumber if yields close in further on the 2% threshold.

The U.S. currency is up around 2% year-to-date, while yields on the benchmark 10-year have risen from around 0.90% at the start of the year to 1.75% in recent days. Higher yields typically make the dollar more attractive to income-seeking investors.

A series of upcoming Treasury auctions will provide important clues on how much further the recent surge in yields can run. The Treasury will auction $60 billion of two-year notes and $61 billion of five-year notes. A $62 billion offering of seven-year notes on March 25 follows last month’s disappointing auction in that maturity, which helped fuel the bond selloff.


The euro area March flash purchasing managers index on Wednesday could give markets a fresh steer on the economic outlook.

Europe, off to a slow start in the COVID-19 vaccination race, faces new hurdles that risk further slowing the post-pandemic recovery.

Brussels is at loggerheads with AstraZeneca over supplies; a number of countries suspended its vaccine on reports of unusual blood disorders.

Germany, France and others will now resume its use, but the stop-and-start are a blow to a faltering inoculation campaign while many countries are fighting a third COVID wave.

Deutsche Bank cut its 2021 euro zone growth forecast to 4.6% from 5.6%; Morgan Stanley warns Europe could be looking at another lost summer tourist season.


Reddit investors’ darling GameStop reports fourth-quarte and full-year earnings on Tuesday and stakes are pretty high given the parabolic 1,200% gain since their December earnings report.

Estimates show the U.S. video game retailer is set to report a loss for the fiscal year, the first one in a really long time.

Will that discourage the Reddit crowd?

The buying frenzy is still on, despite analysts predicting losses for months and none of those covering the stock rating it “buy”.

At $200, the stock is trading more than six times the most bullish price target on Wall Street and no analyst thinks the planned e-commerce offering would justify such high valuations.


After emerging-market central banks in Brazil, Turkey and Russia delivered surprise cumulative rate increases of 300 basis points, focus shifts to policy makers in South Africa and Mexico meeting on Thursday.

Both central banks are seen on hold while grappling with sluggish growth, rising inflation pressures and climbing global yields. Mexico is poised to enjoy some benefit from the U.S. stimulus package.

Meanwhile, Monday should see China confirm that its banks will leave its lending benchmark, the one-year-loan prime rate (LPR), unchanged at 3.85% for an 11th month as higher producer prices, leftover deflation in consumer prices and rising bond yields in late 2020 preclude the need for policy tightening.