Welcome to The Signal’s weekly “Macro Minutes.” Each week, we analyze the most important communications from a specific region and provide insight based on our quantitative analysis of central banks.
On Monday, we noted that this “week’s crop of communications will likely take a November hike off the table, while pointing firmly towards December.” With the Minutes coming in more dovish* than many expected, earning a residual** score of -0.23, the most important Fed communication of the week has confirmed our forecast.
Emphasizing that the economy seemed to be rebounding from a weak first half of the year, the minutes noted that—once this rebound is confirmed—a hike will be coming “relatively soon.” The use of “relatively” suggests that the meeting was not as hawkish as its three dissenters had led many Fed watchers to believe—giving the minutes the more-dovish-than-expected tone captured in our residual score***.
Responding consistently with the minutes’ dovish sentiment, US equities rose following the communication’s release:
“Equities notched session highs following the release of the minutes. The S&P 500 (+0.3%) currently trades neck-and-neck with the Dow Jones Industrial Average (+0.3%). The benchmark index moved up to test technical resistance near the 2144/2146 price level, but has since pulled back slightly.”
The bottom line: a November hike appears to be off the table, while December is still highly likely.
The Signal Team
* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as 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.
** 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.
***Significantly more dovish than the September meeting statement’s score of 0.05.
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 © 2016 Prattle Analytics, LLC.