Brexit’s Fallout, June’s Jobs, And The BOE’s Meeting

  • Monday, July 11, 2016

Welcome to the Signal’s “Weekly Review and Preview.” Each week, we analyze the most important communications from the previous week and give our thoughts on upcoming releases.

  • Review

Federal Reserve
In brief: Neutral and somewhat pessimistic
Analysis: The FOMC minutes released last week scored almost perfectly neutral (residual -0.03) and indicated some concern over slow growth in the labor market. Market concerns about the employment picture, however, were likely partially reversed by Friday’s strong jobs numbers.

European Central Bank
In brief: Cautiously optimistic
Analysis: Last week’s ECB meeting minutes revealed cautious optimism (residual 0.23) coupled with a continued willingness to act if financial conditions deteriorate. Four of the five ECB speeches last week echoed this sentiment.

Table

Bank of England
In brief: Carney touted stability
Analysis: In his highly anticipated first speech since the Brexit Vote, Mark Carney indicated that the British financial system is stable despite the strong headwinds resulting from the referendum. The speech scored mildly hawkish at 0.35…but was dovish for Carney, with a residual score of -0.45.

Reserve Bank of Australia
In brief: Held rates
Analysis: As expected, the RBA held rates at its policy meeting last week. With a Prattle score of -2.06, the accompanying statement–very much like other recent RBA statements–indicated concern over slowing global growth and softening inflation. This dovish sentiment suggests another rate cut may be around the corner.

Swedish Riksbank
In brief: Held rates
Analysis: In the midst of the Brexit fallout, the Riksbank also held rates at its policy meeting last week. Expressing cautious optimism (the statement’s residual score was 0.27) that Brexit-related turmoil would leave the Swedish economy untouched, policymakers also indicated that accommodative monetary policy may be maintained longer than anticipated.

  • Preview

Federal Reserve
Forecast: Response to strong jobs numbers
Analysis: Speeches from George, Bullard, Mester, Lockhart, and Kashkari this week could provide insight into the Fed’s reaction to the strong labor market conditions indicated by Friday’s jobs numbers. After Bullard’s recent argument for only one hike in 2016-2017, we will pay particular attention to whether or not he’s been swayed by the improving labor market.

FRCResidualsJuly11

Bank of England
Forecast: Likely to hold rates
Analysis: All eyes will be on the Bank of England this week for its first policy meeting since the Brexit vote. Although BOE sentiment declined ahead of the Brexit vote, this followed a rise in sentiment corresponding to bankers’ attempts to talk up the British economy. The bank’s overall trend has remained relatively stable, so we expect a rate hold. Policymakers are waiting to see the full financial implications of Brexit, before they consider a 25bps cut later this year.

Bank of Canada
Forecast: Likely to hold rates
Analysis:The Bank of Canada’s policy meeting will be far less dramatic. Although BOC sentiment has seen a recent decline, policymakers will likely hold rates while waiting to see how markets continue to react to the Brexit vote.

Bank of Korea
Forecast: Likely to hold rates
Analysis: Although financial market volatility and below-target inflation could justify a 25bps rate cut, we expect the Bank of Korea to hold rates this week due to steady sentiment since its last rate cut only a month ago.

The Signal Team

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