BOE Holds Rates, Fed to Discuss June Hike | Weekly Review and Preview

  • Monday, May 16, 2016

Welcome to Prattle’s “Weekly Review and Preview.” Each week, we analyze the most important communications from the previous week and give our thoughts on upcoming releases.

  • Review

Bank of England
In brief: Held rates
Analysis: The Bank of England (BOE) took the spotlight last week by holding rates—as we expected—and signaling that they are prepared for stimulus if financial conditions deteriorate as a result of Brexit. We scored the policy statement a relatively dovish -0.4.

BOEMay16

European Central Bank
In brief: Defending policy actions
Analysis: The ECB continued defending its policy actions last week while taking a wait-and-see approach to gauge the region’s continued response to negative rates.

Norges Bank
In brief: Held rates
Analysis: The bank of Norway held rates and maintained relatively neutral language (we scored the statement a neutral 0.13) while signaling the possibility of a rate cut later in the year. Like the BOE and the ECB, Norway is a European economy in wait-and-see mode regarding both Brexit and negative rates.

Bank of Japan
In brief: Evaluating effects of negative rates
Analysis: The BOJ minutes released last week revealed that policymakers believe Japan is experiencing a “moderate recovery trend.” These minutes scored a notably hawkish 1.86. This message was then counteracted in a speech by Governor Kuroda and another by Deputy Governor Nakaso, both indicating the BOJ was simply pausing to evaluate the real economic effects of negative rates so they can determine the best tool for stimulus going forward. Kuroda’s speech scored a very dovish -0.83, while Nakaso’s was slightly less dovish at -0.65.

Bank of Korea
In brief: Held rates
Analysis: The Bank of Korea held rates while its new board settled in. The statement scored slightly hawkish, but the discussion focused on the importance of data in determining if monetary easing is necessary.

Federal Reserve
In brief: Gave differing speeches
Analysis: Regional Fed Bank Presidents were active speakers this week with Dudley, Rosengren, Kashkari, George, Mester and Williams all speaking. Kashkari’s speech scored surprisingly hawkish, while Williams and Rosengren both scored rather moderate, each reiterating their stance that the market is not pricing in an appropriate rate path for this year. Mester scored a very hawkish 1.25 in a particularly academic speech concerning inflation. In a speech about poor labor market conditions, George reiterated the need for rate hikes despite scoring surprisingly dovish (-0.45). Dudley’s speech touched on monetary policy by commenting on the decline of dollar dominance, resulting in a slightly dovish score.

  • Preview

Federal Reserve
Forecast: Likely to clear up uncertainty over June hike
Analysis: With numerous Fed speakers scheduled along with the release of the FOMC meeting minutes, we are anticipating this week to be a turning point in terms of the Fed’s division over a June rate hike. If the Fed does not express a firm stance, the lack of correct market pricing could constrain the FOMC. The April minutes should work to clear up this uncertainty.

FRCSpeakersMay16

European Central Bank
Forecast: Will continue wait-and-see approach
Analysis: ECB policymakers meet this week, but not to discuss monetary policy. We expect more wait-and-see language from the counsel and several speakers.

Bank of England
Forecast: Will caution against Brexit
Analysis: BOE speakers this week will likely use veiled language to caution against Brexit while reiterating that the bank stands ready to act if necessary.

Swedish Riksbank
Forecast: Likely to express concern over Brexit
Analysis: Swedish policymakers may express concerns rather bluntly as their economy is being impacted by Brexit uncertainty.

Norges Bank
Forecast: Additional concern over Brexit
Analysis: Similarly to Sweden, Norway’s economy is also being affected by Brexit uncertainty, and policymakers are expected to express their concerns in speeches slated in the coming week.

Reserve Bank of Australia
Forecast: Release of minutes will provide rationale for rate cut
Analysis: With the release of its meeting minutes this week, the RBA will provide an explanation for the rate cut that caught many off guard. We predicted this cut, but these minutes should provide vital insight into the future path of rates from the tight-lipped RBA.

The Prattle Team

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