Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Federal Reserve
Forecast: Minutes and speeches to suggest December hike
Analysis: In yet another week packed with speeches (five, including Yellen), the FOMC minutes (October 12) will steal the spotlight. With the September FOMC statement coming in slightly hawkish* (residual** 0.05), we expect the minutes–as well as the speeches from Harker and Rosengren–to follow suit. However, Yellen’s speech on Friday will really be the one to watch as she expresses a need for “gradual tightening.” This week’s crop of communications will likely take a November hike off the table, while pointing firmly towards December.
European Central Bank
Forecast: Mersch to add to the modestly hawkish chatter
Analysis: Yves Mersch has become the most vocal member of the ECB with a series of recent modestly hawkish speeches (momentum 0.24). This week’s speeches (October 11 and 12) come as part of a trip to the U.S., and we expect he will use this platform to reinforce the general hawkish momentum (0.47) of the ECB and advocate continued optimism about the Eurozone economy.
Reserve Bank of Australia
Forecast: Stability Review to reveal concerns about real estate bubble
Analysis: The RBA has proved to be one of the most vexing central banks this year. Their tone has been increasingly dovish (momentum -1.28), but the move to hold rates last week along with rising commodity prices, a surprisingly buoyant Chinese economy, and fear that the urban Aussi real estate market may be overheating could cause a tonal shift. The Stability Review this week (October 13) will likely highlight these concerns…but also continue with dovish rhetoric.
Bank of Japan
Forecast: Momentum to remain neutral
Analysis: After weeks of diverse chatter (resulting in wide score dispersion), this week looks to be fairly quiet for the BOJ. A speech from Harada on October 11 is unlikely to move momentum far from its current neutral (0.00) stance.
Bank of England
Forecast: Testimony to emphasize the stability of the British Economy
Analysis: As Deputy Governor for Financial Stability, Jon Cunliffe is speaking before the House of Lords this week (October 12). Expect a neutral tone (momentum 0.03) as Conliffe balances concerns over recent GBP weakness and volatility with positive comments about the way the British economy has responded to easing efforts and the minimal immediate impact of Brexit.
Bank of Israel
Forecast: Minutes to clarify dovish sentiment
Analysis: Although it held rates in September (statement residual -0.57), the shift away from tightening talk to significantly more dovish language (momentum -0.64) suggests BOI is not increasing rates anytime soon. The minutes (released on October 10) will reveal the expected duration of this dovish trend.
Bank of Korea
Forecast: Likely to hold rates
Analysis: After cutting rates in June, the BOK has made a concerted effort to talk up (momentum 0.48) an economy that is growing stronger. With a looming Fed hike likely to impact available capital in Korea, expect a rate hold at this week’s meeting (October 12).
Bank of Mexico
Forecast: Minutes to put policy on hold
Analysis: The BOM has been trending (somewhat) hawkish (momentum 0.23) lately–and just hiked rates by 50bps at the last meeting–so a hawkish set of minutes (released October 13) seems to be a foregone conclusion. That said, with political and economic uncertainty brewing up north (the U.S.), the minutes will likely put policy on hold until the uncertainty of the U.S. election subsides…while taking a somewhat hawkish tone.
Norges Bank
Forecast: Hawkish rhetoric to keep rate cuts off the table
Analysis: Olsen, speaking on October 12, is likely to fall in line with the Norges Bank’s modestly hawkish sentiment (momentum 0.16). Olsen has recently suggested that rate cuts are off the table, and that, coupled with his slightly hawkish mood (momentum 0.34), make it highly likely he’ll be signaling that for the time being, it’ll be steady-state policy.
The Signal Team
* 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.
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