Welcome to Prattle’s “Macrocast.” Using our proprietary central bank analytics, we provide analysis and forecasting on the market-moving releases in the week ahead.
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Forecast: Speeches likely to clarify 2017 rate path
Analysis: With the Fed trending slightly hawkish* (momentum** 0.19) and seven policymakers speaking, this week will likely shed some light on the coordinated messaging effort to signal last week’s rate hike. It will be particularly interesting to see if any policymakers suggest that they sounded too hawkish ahead of last week’s meeting, resulting in market disappointment over three instead of four 2017 hikes in the SEP. The most interesting monetary policy oriented speeches this week may come from several regional bank presidents, specifically Charles Evans (3/20), Loretta Mester and Esther George (3/21), and Jim Bullard (3/24). Conversely, Janet Yellen (along with Neel Kashkari and Charles Evans) is slated to speak at a community banking event on March 23 that is unlikely to touch on monetary policy. Similarly, John Williams is presenting an academic paper on the natural rate of interest.
European Central Bank
Forecast: Lautenschlager likely to sound moderate or slightly hawkish
Analysis: Sabine Lautenschlager is slated to deliver a speech (March 22) and sit on a panel (March 23). Given her recently rising trend (momentum 0.21), her remarks are likely to be a bit more hawkish than the slightly dovish ECB trend of late (momentum -0.05). She may even allude to future rate hikes, possibly before fully tapering asset purchases.
Bank of Japan
Forecast: Minutes from January meeting likely to be somewhat hawkish
Analysis: BOJ trend has been steadily declining since the January 30-31 rate meeting (statement residual score 1.20), so the minutes released on March 21 are likely to be markedly more hawkish than current momentum (-0.21).
Bank of England
Forecast: Summary of Business Conditions likely to highlight split on Monetary Policy Committee
Analysis: Several weak key economic indicators have caused growing concern that rising inflation does not accurately reflect the real UK economy. Nevertheless, Kristin Forbes played the role of inflation hawk at last week’s meeting when she dissented in favor of a 25bps rate hike while the rest of the committee voted to maintain record low interest rates. This conflict between strength among certain indicators (inflation) and weakness among others (like aggregate demand) suggests that some committee members are more concerned with the potential effects of Brexit than others. With BOE trend decreasing and momentum at -0.24, the doves seem to be winning at the moment.
Reserve Bank of Australia
Forecast: Minutes likely to be moderate to slightly dovish as inflation remains low
Analysis: Although optimistic about the global economy, Aussi policymakers remain concerned about persistently low inflation at home. These concerns will likely result in another slightly dovish set of minutes, though they are likely to be balanced by a more hawkish speech by Deputy Governor Guy Debelle on March 22.
Reserve Bank of New Zealand
Forecast: Likely to hold rates on March 23
Analysis: The RBNZ is trending more dovish in recent weeks as Q4-2016 and early Q1-2017 data has come in softer than expected. Although momentum remains on the hawkish side of neutral (0.09), the RBNZ is likely to strike a dovish tone reflecting concerns about the weakening data. A very dovish statement is unlikely, though Governor Graeme Wheeler—whose term ends in September—may use this opportunity to be more dovish and set the stage for stimulus before his departure.
Bank of Canada
Forecast: Schembri remarks likely to be cautiously optimistic, score hawkish
Analysis: After a substantial dovish streak at the end of 2016, the BOC is trending more hawkish in early 2017, though momentum remains slightly dovish at -0.26. This week’s speech by Lawrence Schembri is likely to paint a more optimistic picture about trade and score somewhat hawkish (Schembri’s momentum is 0.43), thereby dragging BOC momentum back into neutral territory.
Swiss National Bank
Forecast: Speeches by Maechler and Moser likely to be neutral, possibly slightly dovish
Analysis: Alternate members Andrea Maechler and Dewet Moser are both slated to speak at a Money Market event on March 23. Neither are likely to break from the SNB’s currently neutral trend (momentum 0.02), but any deviation will likely err on the dovish side to reinforce last week’s decision to maintain negative interest rates.
Forecast: Presentations likely to reinforce neutral policy stance
Analysis: Presentations by Governor Olsen and Deputy Governors Nicolaisen and Matsen on March 22 are likely to reinforce last week’s decision to hold rates steady. Moderate policy seems to be the message from the Norges Bank of late (momentum 0.13), though cooling inflation may nudge remarks into dovish territory.
The Prattle Team
* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as the 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. Aggregate trend is the overall sentiment of the bank calculated using a LOESS fitting of trend using a 12-month window.
** 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. Momentum is the average of the last ten residual scores.
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.
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