Which affects markets more: a central bank’s monetary policy…or its words?
Yesterday, the European Central Bank (ECB) announced vigorous stimulus measures, ramping up its commitment to QE and slashing key rates. The announcement came with somber words by ECB President Mario Draghi: “the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.” In light of these events, the euro initially suffered a 1.6% drop against the dollar while stocks went up.
Draghi, however, was not finished: “the Governing Council expects key interest rates to remain at present or lower levels for long period of time and well past the horizon of our net asset purchases. Based on the current view, we don’t anticipate it will be necessary to reduce rates further.” Upon hearing Draghi’s affirmation of steady interest rates, the markets flipped, causing stocks to decrease and the euro to finish 1.7% stronger against the dollar and land at a three-week high of $1.1217!
This sudden turnaround illustrates the close ties between the markets and central bank communications: the ECB’s stimulus will certainly have an impact, but so will its words.
This macroeconomic reality is core to Prattle’s message.
Many, if not most, of the central banks around the world have transformed into vocal, transparent institutions, and this development has changed the game for financial professionals. Understanding the impact of central bank communications has become essential to understanding the global markets, and yesterday is a perfect example.
Fortunately, Prattle’s tech was designed to decode this relationship.
Combining domain expertise with cutting-edge textual analysis tech, Prattle’s Central Bank Sentiment Indexes produce real-time, quantitative, and actionable data for 20 of the world’s biggest central banks. These signals emerge from an algorithmic evaluation of the historical relationship between each institution and the markets and represent each institution’s “mood.” With this data, users can understand the economic impact each central bank’s words will have better than anyone else, giving them a clear edge in a financial world that has, increasingly, come under the influence of these institutions.
The Prattle Team