5 for 5: Prattle’s Perfect Week | MACRO MINUTES

  • Friday, September 9, 2016

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In our weekly Macrocast, Prattle correctly forecast the policy outcomes of every global central bank meeting this week. Based on the trends in our quantitative sentiment data, we predicted that the European Central Bank, Reserve Bank of Australia, Swedish Riksbank, Bank of Canada, and Bank of Korea would hold interest rates–and all of them did.

We forecast an ECB hold based on the bank’s hawkish* momentum** score, and the bank followed through with a neutral (residual -0.05) policy statement and a hawkish (residual 0.88) statement delivered by ECB Governor Mario Draghi on 9/8.

Our hold call for the Reserve Bank of Australia was based on the persistently below-neutral trend from the bank leading up to the meeting. Continuing that trend, the RBA’s 9/6 interest rate statement scored very dovish with a residual of -1.94.

The Swedish Riksbank hold prediction was based on the bank’s slightly hawkish momentum of 0.27. The 9/7 announcement released by the bank scored hawkish (residual of 0.23), perpetuating the trend we identified at the beginning of the week and further meeting our expectations by mentioning potential rate hikes in 2017.

While the Bank of Canada was relatively tight-lipped leading up to its 9/7 policy meeting, we forecast a rate hold based on its slightly dovish momentum score of -0.11. The statement released by the bank scored hawkish (residual of 0.79) and matched our expectation of a rate hold.

Our system scored the Bank of Korea’s most recent set of meeting minutes as strongly hawkish (residual 1.74), leading us to forecast a rate hold at the BOK’s 9/8 meeting despite recent talk of additional cuts. The bank continued its hawkish trend by holding rates and releasing a hawkish statement (residual of 1.09).

These outcomes showcase the viability of Prattle’s sentiment data, when applied correctly, as an effective forecasting tool for global monetary policy. In fact, the accuracy of Prattle scores as a means of forecasting policy has earned a great deal of attention recently.

The Signal Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness.

** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications.

Disclaimer: the forecasts provided herein are based upon sources believed by Prattle Analytics, LLC D/B/A Prattle, to be reliable and to be developed from models which are generally accepted as methods for producing economic forecasts.

Prattle cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice.

Copyright © 2016 Prattle Analytics, LLC.