Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Minutes to express hawkish sentiment, confirm likely December hike
Analysis: After last week’s barrage of speeches, the only noteworthy Fed communication this week is the November 23 release of the minutes from the November 2 FOMC meeting. Since the FOMC statement was the most hawkish* in several years (residual** 0.32), we anticipate a similarly hawkish set of minutes—possibly with a residual as high as 0.5—indicating that a December rate hike is a nearly foregone conclusion. The November FOMC meeting happened before the election, so the minutes may include a fair number of caveats expressing concern about the potential for weakening financial conditions. These caveats will drag down sentiment, but with steady financial conditions and a strengthening labor market, recent remarks (momentum -0.19) have clearly signaled the Fed is on track for a December hike.
Bank of Japan
Forecast: Sentiment to continue neutral rebound
Analysis: We expect Takako Masai’s first speech at the BOJ on November 21 to fall mostly in line with the BOJ’s dovish tenor (momentum -0.34), though it is noteworthy that trend has been rising toward neutral since late October.
Reserve Bank of Australia
Forecast: Speakers to reinforce move to neutral sentiment
Analysis: We expect the two speakers scheduled this week (Aymler on November 21 and Kent on November 22) to mostly adhere to recent trend. They will likely provide slightly dovish remarks that are still more hawkish than the RBA’s previously negative trend.
Forecast: Financial Stability Report to reveal stability, downside risks
Analysis: Kerstin af Jochnick’s November 21 speech on financial stability will likely set the stage for the complete financial stability report the Riksbank is releasing on November 23. It is unlikely that this report will deviate much from the Riksbank’s recent hawkish trend, though it is worth note that sentiment (momentum 0.39) has declined slightly since earlier in the fall.
Swiss National Bank
Forecast: Chatter about negative rates, currency intervention
Analysis: Investors fleeing to the security of the Swiss franc have caused it to strengthen, sparking murmurings about intervention to devalue the franc. Fritz Zurbrugg’s November 24 speech is unlikely to contain such an announcement, though it will address the value of negative interest rates as a tool for central bankers. We anticipate that the speech will pull recently rising trend (momentum -0.03) back into dovish territory.
Central Bank of Turkey
Forecast: Likely to hold rates in wait-and-see approach
Analysis: Turkish central bankers have been silent over the last three weeks, but communications at the end of August indicate a rebound (or at least stabilization) of sentiment (momentum -0.01). This suggests the Bank of Turkey may take a wait-and-see approach at its November 24 policy meeting.
The Signal 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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