5 Meetings, 5 Holds | MACROCAST

  • Friday, September 2, 2016

Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.

Prattle scores (1)

European Central Bank
Forecast: Likely to hold rates on September 8
Analysis: With a slightly hawkish* momentum** score of 0.27, the ECB will hold this week. While he’ll likely talk up economic strength during his press conference, Draghi could also signal continued willingness to act should the Eurozone need it.

Reserve Bank of Australia
Forecast: Likely to hold rates on September 6
Analysis: After cutting rates on August 2, RBA sentiment has rebounded but continues with aggregate trend below neutral, pointing to a hold.

Swedish Riksbank
Forecast: Likely to hold rates on September 7
Analysis: The Riksbank is likely to hold rates and signal a future hike. Although its last policy meeting indicated the postponement of hikes, the bank’s slightly hawkish (momentum 0.27) trend suggests hikes in the near future. We expect both the policy statement and policymakers’ speeches to support this narrative.

Bank of Canada
Forecast: Likely to hold rates on September 7
Analysis: While the BOC has been quiet recently, the communications the bank has published have been near neutral (momentum -0.11).

Bank of Korea
Forecast: Likely to hold rates on September 8
Analysis: Already sitting at record-low rates, the BOK—despite recent talk of additional cuts—will hold. Our algorithm scores the latest set of minutes as strongly hawkish compared to the average score for minutes (residual 1.74), and this suggests the bank is not interested in more cuts…at least for now.

9.02.16_CB Trends

Federal Reserve
Forecast: Officials to continue hinting at September hike
Analysis: After a somewhat weak employment report, we expect Williams and Rosengren to dial back the Fed’s recent hawkish tone (momentum 0.16) while continuing to signal the possibility of a September hike and likelihood of at least one hike before year end.

Bank of Japan
Forecast: Likely to signal stimulus
Analysis: On the heels of an exceptionally dovish talk last week (residual -2.17), the BOJ’s Kuroda will likely come across less dovish in this week’s speech. However, if Kuroda comes in below -1 again, the BOJ could be ramping up its stimulus efforts in the near future. 

Bank of England
Forecast: Likely to signal neutrality
Analysis: In his appearance before the UK Parliament’s Treasury Committee, BOE Governor Mark Carney will likely defend recent stimulus measures as necessary and sufficient. The bank has been almost perfectly neutral lately (-0.01), and Carney will fend off attempts to discuss more stimulus and espouse a “stay-the-course” mentality.

9.2.16 Table_Large

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* 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.