Data-Driven Insights on Fed, RBA Minutes

  • Monday, February 20, 2017

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

Federal Reserve
Forecast: FOMC Minutes likely to score slightly hawkish*, but stop short of signaling hike
Analysis: Although Harker and Lockhart are delivering speeches that are likely to score hawkish and moderate, respectively, the highlight of the week will be the FOMC minutes released on February 22. The February 1 FOMC statement scored a slightly hawkish residual** of 0.21, which is lower than December (0.27) and November (0.32). We expect the minutes will reflect a tone similar to the statement: slightly hawkish, but not expressly pointing to a rate hike.

European Central Bank
Forecast: Praet likely to echo ECB’s slightly hawkish momentum on February 23
Analysis: The only ECB communications scheduled for this week will come from Peter Praet, who is slated to speak twice. With ECB momentum at 0.30 and Praet’s momentum at 0.21 (and rising), we expect Praet will echo the bank’s modestly hawkish tone as it retains cautious optimism amid growing political uncertainty in several of Europe’s largest economies.

Bank of Japan
Forecast: Kiuchi likely to sound slightly dovish on February 22
Analysis: Speaking for the first time in almost 6 months, Takahide Kiuchi will likely adhere to his neutral to slightly dovish views, especially with BOJ momentum dipping down to -0.24.

Reserve Bank of Australia
Forecast: Minutes and Lowe speeches likely to be less dovish than current trend
Analysis: Although RBA momentum remains decidedly dovish (-0.88), the bank has shifted toward signaling the end of the rate cut cycle. Accordingly, we expect the minutes released on February 21 to provide a less dovish (though still not hawkish) tone. Philip Lowe is likely to echo this less dovish sentiment in both of his speeches.

Bank of Korea
Forecast: Likely to hold rates on February 22
Analysis: After a sharp drop in sentiment through the fall of 2016, the Korean central bank has remained fairly quiet and relatively neutral (momentum 0.04) in recent months. This leads us to expect a rate hold coupled with a slightly dovish statement expressing concern over slower-than-forecast growth.

Central Bank of Brazil
Forecast: Likely to hold rates and prioritize protecting the real on February 22
Analysis: With BRA momentum remaining on the dovish side of neutral (-0.14) and the real relying on currency market intervention, we expect a fairly dovish policy statement signaling readiness to act to further protect the currency, though they prefer not to raise interest rates.

Bank of Mexico
Forecast: Minutes likely to indicate continued willingness to raise rates
Analysis: At its February 9 policy meeting, the Bank of Mexico voted to raise rates 50bps for the fourth consecutive time. We expect the minutes released on February 23 will reflect a continued willingness to tighten policy as the peso continues to struggle.

The Prattle Team

Click here to Request a Trial

* 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.

Copyright © 2017 Prattle Analytics, LLC.