Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
European Central Bank
Forecast: Chatter likely to remain neutral/slightly hawkish*
Analysis: After a pivotal December meeting (policymakers extended the duration of bond purchases while cutting the quantity), last week’s meeting was rather uneventful. Although the meeting and subsequent speeches produced a variety of viewpoints, the general tone was the same: the ECB is cautiously optimistic that inflation will return and that policy can be tightened at some point in 2017. We anticipate that the four scheduled speeches this week will strike the same tone keeping momentum** near its current level (0.16). Sign up for a free Prattle trial to take a closer look at our ECB data.
Bank of Israel
Forecast: Likely to hold rates on January 23
Analysis: Despite their recent dovish trend (momentum -0.49), it is unlikely we will see a rate cut this week. Just three weeks ago, policymakers declared their medium term policy goals to raise rates back to “normal” levels. Though we anticipate little immediate change in policy, we are keeping an eye out for reforms in how/where the Bank of Israel invests foreign exchange reserves.
Central Bank of Turkey
Forecast: Likely to raise rates 50bps on January 24
Analysis: The lira started the year in free fall, forcing the central bank to curtail liquidity and boost the currency after just two weeks. Although the bleeding has subsided, the lira is still much weaker than it was just a couple months ago. A recent hawkish turn in tone has driven the bank’s momentum into positive territory for the first time in months (0.06).
This suggests policymakers will take additional steps to bolster the currency. We expect a significant, though not aggressive, rate hike.
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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