Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Likely to hold rates on September 21
Analysis: We expect the Fed to hold rates on Wednesday due to aggregate trend currently sitting below the high point reached ahead of the December 2015 FOMC hike.
Our projected raw score* for the FOMC statement, -0.41, is identical to the score of the September 2015 FOMC rate hold announcement that signaled a hike before year-end.
It is worth note that Larry Meyer’s draft statement scores significantly lower at -0.71 (residual** -0.17). This suggests market expectations are more dovish than our projected score. Accordingly, we expect the market will be affirmed by the hold, but surprised by the hawkishness of the language suggesting an imminent hike. Also worth note, several regional bank presidents are speaking at the end of the week; Kaplan, Harker, Lockhart and Mester are all speaking on community banking or regional economic issues.
Bank of Japan
Forecast: Likely to hold rates and amend bond purchasing on September 21
Analysis: Although aggregate trend from the BOJ is in negative territory and momentum is significantly dovish (-0.60), the fact that trend has leveled off and scores continue to be widely dispersed suggests that the bank will once again avoid bold policy action. Instead, we expect the BOJ to opt for changes to its bond buying program in an effort to steepen the yield curve without having to move rates further into negative territory.
Reserve Bank of New Zealand
Forecast: Likely to hold rates on September 21
Analysis: Soft inflation data and a strengthening currency might point to a rate cut from the RNBZ, but the bank’s gradual rise in sentiment (momentum 0.01) coupled with encouraging economic data suggests a hold this week.
Forecast: Likely to hold rates on September 22
Analysis: The Norges Bank’s rebounding sentiment trend coupled with rising inflation and housing price growth indicate that a cut is off the table and a rate hold is much more likely.
Bank of Turkey
Forecast: Likely to cut rates on September 22
Analysis: Despite flat to slightly hawkish sentiment (momentum 0.13), the combination of political pressure, slowing growth and a buoyant Lira in the face of recent rate cuts suggests that the Bank of Turkey is likely to cut rates once again.
European Central Bank
Forecast: Speakers, Economic Bulletin to trend hawkish
Analysis: With four speakers and the release of an economic bulletin and TLTRO results this week, the ECB (momentum 0.18) is poised to continue nudging into hawkish territory this week if Mario Draghi and his colleagues Mersh, Lautenschläger and Constâncio echo Draghi’s recent hawkish remarks.
Reserve Bank of Australia
Forecast: Minutes to clarify dovish pattern
Analysis: The RBA minutes released on Monday are likely to further explain the dovish remarks from the September 6 policy meeting. Although the minutes are likely to be less dovish, a residual of around -1.0 could suggest an imminent rate cut. Also, RBA Governor Philip Lowe’s speech this week should help firm our perception of him after only three speeches so far this year.
Bank of England
Forecast: Statement, speech to signal rate path
Analysis: The Bank of England Financial Policy Committee will issue a statement on September 22 that may help clarify the state of the UK economy as well as the BOE’s perceived policy options going forward. Mark Carney’s September 22 speech could illuminate whether another rate cut is in the cards, though he may also stick to the script and talk about the economic threat of climate change.
Bank of Canada
Forecast: To trend hawkish
Analysis: After a quiet summer, recent BOC communications have suggested a slightly more hawkish stance (momentum 0.07). When Stephen Poloz speaks on September 20 he is likely to echo this direction as his current momentum is 0.58.
Forecast: Speech, minutes to signal rate path
Analysis: With a momentum of 0.12 after a moderately hawkish September 7 policy statement, a speech from Governor Stefan Ingves and the minutes released this week should provide clarity from the Riksbank, which has suggested maintaining negative rates. Clear, dovish signals will be needed for the market to react as though rates will not be raised in the relatively near future.
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.
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.
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