Scoring Europe: Downturns and Delays

  • Wednesday, September 2, 2015

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Poised to raise interest rates in tandem with the Fed, the Bank of England will most likely rethink their timing due to a recent economic dip.

The turmoil of the global economy coupled with a recent round of layoffs in the British manufacturing sector have put an abrupt stop to months of strong performance by the UK economy. The FTSE 100 Index, a benchmark UK index, has dropped by 10% in the last 4 weeks. Reflecting the current economic woes, the mood of the Bank of England (BOE) has been dropping precipitously for the last month, and all signs point to a delay in a BOE rate hike.

Next week’s BOE meeting should be telling. Although Prattle no longer sees an immediate rate increase as reasonable, the mood of the meeting could determine whether a 2015 rate increase is still on the table–or if the current downturn will seriously delay rate normalization in Europe’s strongest economy.

When it comes to mainland Europe the story is much the same: both the CAC and DAX Indexes are off their August highs by upwards of 10%. The ECB and Swedish Riksbank meet this week to discuss rates, but with the market instability continuing and only downward trending sentiment, we expect a wait-and-see approach from both banks.

Taken together, the European region sits at -0.21 (we round to integers for our gauge).

European Regional Central Bank Mood

Bottom Line: With economic troubles flaring up, the current (slightly dovish) mood of the European central banks is indicative of a continent in uncertain waters.

The Prattle Team,
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Every week the Prattle team will be publishing its take on a global central bank region. There are 4 regions–European, North American, South American, and Asian–and the regions will be scored based on our analysis of all the central bank communications in that region over the past week. Indicating the “hawkishness” or “dovishness” of the region, the scores will be given in integers ranging from -2 to +2 where -2 is extremely dovish and +2 is extremely hawkish.

For more precise scoring on individual banks, speakers, and communications, you can reach out to Prattle on our contact page or through this link.