Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Chatter to signal December hike
Analysis: Considering Friday’s positive jobs numbers and the Fed’s steadily rising sentiment, we expect that the five Fed speakers scheduled this week will continue to send hawkish signals of a December hike. Highlights will include Williams on November 9 and Fischer on November 11.
European Central Bank
Forecast: To continue positive sentiment
Analysis: As economic activity across Europe continues to show positive signs, we anticipate that all four ECB speakers scheduled this week—particularly Mersch and Constancio—will perpetuate the bank’s somewhat hawkish rhetoric (momentum 0.28).
Bank of Japan
Forecast: Minutes to show reluctance to engage in stimulus
Analysis: After the BOJ finally reached a consensus to take minimal action (in this case, to lower the inflation target), we expect a fairly moderate set of minutes to be released this week. The minutes will likely reflect a hawkish unwillingness to engage in further stimulus…but a dovish recognition of lower inflation. This is largely consistent with the BOJ’s recent return to near neutral sentiment (momentum -0.14).
Reserve Bank of New Zealand
Forecast: Likely to cut rates by 25bps on November 9
Analysis: Despite infrequent communications recently, RBNZ sentiment has declined over the last month, and, with persistently low inflation plaguing New Zealand, the bank appears poised for another rate cut. We expect policymakers will couple this cut with modestly hawkish sentiment to avoiding further stoking an already hot real estate market.
Forecast: Moderate minutes to express optimism while extending asset purchases
Analysis: After a rate hold and continuation of asset purchases, we expect the Riksbank’s minutes to express optimism towards the state of the Swedish economy, slightly tempering its recent hawkish trend (momentum 0.46). This will likely be confirmed by Stefan Ingves (momentum 0.18) when he speaks on November 10.
Bank of Korea
Forecast: Likely to hold rates with dovish remarks on November 10
Analysis: BOK trend has declined recently, but momentum still sits in positive territory (0.24), so we expect a rate hold at the bank’s meeting this week. This decision will likely be coupled with relatively dovish remarks referencing rising household debt and potential economic headwinds.
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.
** 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 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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