ECB Holds, RBA to Follow Suit | Weekly Review and Preview

  • Monday, June 6, 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

European Central Bank
In brief: Remaining optimistic about current policy
Analysis: The ECB held rates and issued a somewhat dovish statement (-0.35) last week–as we expected–indicating that longer-term refinancing operations are right around the corner. Draghi’s hawkish prepared remarks (0.47) and dovish Q&A responses (-0.36) revealed that the ECB is still optimistic about its 2% inflation goal and willing to take additional actions to make it a reality.

Federal Reserve
In brief: No hike in June
Analysis: Bullard, Evans, Brainard, and Mester all spoke for the Fed last week. Bullard did not speak specifically on the current rate path. Evans and Brainard both indicated willingness to wait for the next hike; Evans (residual -0.19) wants to see core inflation hit 2% before another hike and Brainard (residual -0.56) expressed concern over “remaining downside risks.” Undeterred by Friday’s weak jobs figure, Mester (residual 0.19) was the only Fed speaker last week clearly in favor of a hike.

FRCSpeakerTrendJune6

Swedish Riksbank
In brief: Optimistic about current conditions
Analysis: Policymaker Kerstin af Jochnik (residual 0.54) defended negative rates and was optimistic about rising inflation–despite Stefan Ingraves’ recent concerns about falling housing prices in Sweden.

Bank of Turkey
In brief: Willing to hold policy
Analysis: Turkey’s meeting minutes (-0.16) suggested a willingness to keep policy tight to avoid high inflation and an understanding of the need for balance as food prices continue to fall.

Bank of Japan
In brief: Growing opposition to negative rates
Analysis: The BOJ’s Takehiro Sato strongly advised against negative interest rates (-0.62), stating he had not voted for them and that they are not working as expected. The BOJ’s current downward sentiment trend makes its next step unclear.

  • Preview 

Federal Reserve
Forecast: Setting expectations for FOMC meeting
Analysis: Janet Yellen will speak on Monday and give a final indication before the blackout period of what to expect from the June 15 FOMC meeting. With markets pricing in just a 5% chance of a June rate hike, it is unlikely she will express a different opinion.

European Central Bank
Forecast: Draghi to clarify policy stance
Analysis: President Mario Draghi will speak this week, clarifying some of his remarks from last week and indicating a path forward for the ECB with regard to alternative policies beyond negative rates.

Bank of Canada
Forecast: Likely to indicate future direction of monetary policy
Analysis: BOC Governor Stephen Poloz’s speech this week, coupled with rising BOC sentiment, could give a clear indication of whether the BOC will hold rates steady or look past recent negative shocks and raise rates in the near future.

Reserve Bank of Australia
Forecast: Likely to hold rates
Analysis: RBA sentiment has strongly rebounded after cutting rates last meeting, indicating they are likely to hold rates this week.

RBAJune6

Reserve Bank of New Zealand
Forecast: Likely to hold rates
Analysis: Similar to the RBA, we also expect the RBNZ to hold rates. Although some survey measures have indicated that the RBNZ may cut rates due to falling inflation, Prattle sentiment data suggests steady, fairly neutral sentiment that is slightly rising.

RBNZJune6

Bank of Brazil
Forecast: Likely to hold rates
Analysis: We expect the Bank of Brazil to hold rates this week amid a leadership change at the bank, political turmoil, and the start of the 2016 Summer Olympics. This may be the last time we observe the bank’s strategy of talking up the Brazilian economy, so we anticipate that currently high sentiment scores will drop dramatically in the coming weeks.

BRAJune6

Bank of Korea
Forecast: Likely to hold rates
Analysis: With rates already at a record low and sentiment data almost identical to where it was at their last meeting, we expect the Bank of Korea to maintain current policy at their meeting this week.

Bank of Russia
Forecast: Likely to hold rates
Analysis: Although sentiment has been gradually trending upward from the Bank of Russia, we do not see tighter policy as a realistic possibility for Russian central bankers yet. Expect a hold.

The Prattle Team

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