Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Speakers likely to reinforce message of minutes and signal December hike
Analysis:After a quiet holiday week, this week features eight speeches from six Fed speakers. Although we expect hawkish signals from all (especially Mester’s speech on December 1), the two speeches to watch closely will be Fischer’s and Dudley’s (November 29 before market open). These speeches will echo the restrained hawkishness* of last week’s minutes (residual** 0.37, the highest in almost a year) and signal that the December rate hike continues to be the base case…unless something drastic alters financial conditions in the next two weeks.
European Central Bank
Forecast: Likely to emphasize financial stability and address concerns over a weak euro
Analysis: Benoît Cœuré will talk Greece, its debts, and the role it continues to play in the Eurozone, but all eyes will be on Mario Draghi this week as he testifies before the European Parliament. With the bank’s momentum slightly hawkish (0.35) and trend nearly neutral, we expect optimism about economic growth tempered by the need to address a weakening euro.
Bank of Israel
Forecast: Likely to hold rates, express more neutral tone on November 28
Analysis: While the bank’s sentiment has been somewhat dovish over the past few months, it’s now pulling back toward neutral. With reasonably strong economic growth and very low unemployment, we expect the Bank of Israel will hold rates this week.
Central Bank of Brazil
Forecast: Likely to cut Selic rate by 25 bps on November 30
Analysis: In the last six months the bank’s aggregate trend has fallen by roughly 2 standard deviations, but it has only cut the Selic rate once: 25 basis points in October. The continued decline in sentiment coupled with falling inflation (revised down from 1.6% this year to 1.0%) suggests the bank will cut rates once again. Although a 50 basis point cut seems justified by the economic data, sentiment has only marginally declined since the 25 basis point cut in October, they’ll likely maintain the current pace of rate cuts.
Bank of Canada
Forecast: Poloz likely to discuss growing importance of service sector
Analysis: Stephen Poloz is giving a speech on Monday, November 28 that will likely highlight the growing role of the service sector in the Canadian economy. Although monetary policy may not be directly addressed, this speech could clarify if the recent dovish shift (momentum -0.42) is a durable policy signal or just nerves caused by the uncertainty surrounding U.S. politics and trade.
Forecast: Neutral/slightly hawkish sentiment likely to continue
Analysis: Egil Matsen has given just three speeches in the last year and all have been nearly neutral (-0.05, 0.08, and 0.10 respectively), so we anticipate neutral or slightly hawkish sentiment from Matsen when he speaks on December 1. His tone will likely be consistent with Norges Bank’s mild hawkishness (momentum 0.29).
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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