Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
European Central Bank
Forecast: Likely to hold rates on October 20, signal end of QE in March
Analysis: The ECB’s policy meeting, along with the subsequent press conference, will likely result in a rate hold and a signal that the ECB plans to end QE in March, as previously scheduled. With ECB momentum* and aggregate trend** moving into hawkish territory (0.44 and 0.28, respectively), we also expect Draghi to signal the end of asset purchases in his speech this week, though he may slightly soften the blow to avoid a “taper tantrum.”
U.S. Federal Reserve
Forecast: Fischer to signal rate hike soon, but not November
Analysis: Four Fed speakers (Fischer, Dudley, Williams and Tarullo) will give six speeches this week, but it’s likely only Fischer’s October 17 speech will focus exclusively on monetary policy. Trending significantly more hawkish since June (momentum 0.27), Fischer’s aggregate trend is currently hovering just above neutral (0.06), suggesting he is likely to be open to a rate hike soon, but not in November.
Bank of Japan
Forecast: Likely to trend dovish with no clear stimulus signal
Analysis: The BOJ has taken a dovish turn of late (momentum -0.95), and the two speeches from Governor Kuroda this week (both on October 21) are likely to reinforce this dovish sentiment without signalling imminent stimulus.
Reserve Bank of Australia
Forecast: Lowe to provide neutral sentiment, minutes to remain dovish
Analysis: In his speech on October 17, we expect Governor Lowe (momentum 0.08) to counter the RBA’s currently dovish tone (momentum -1.28) with more moderate sentiment. However, the meeting minutes released later on October 17 will likely be somewhat dovish with a residual between -0.5 and -1.0.
Bank of Canada
Forecast: Likely to hold rates on October 19, express modestly hawkish sentiment
Analysis: Despite declining sentiment and recent economic setbacks, the BOC’s currently neutral momentum (0.12) coupled with improving labor market data points to a rate hold this week. We expect moderately hawkish sentiment from both the meeting and the press conference by Governor Poloz, though Deputy Governor Wilkins may express more neutral sentiment.
Central Bank of Brazil
Forecast: Likely to cut rates by 25bps on October 19
Analysis: With aggregate trend now below zero for the first time this year, the Central Bank of Brazil is likely to cut rates on October 19 due to weak economic growth and falling inflation. Governor Goldfajn’s reluctance to signal stimulus is likely to keep the rate cut to just 25bps, or possibly nudge Goldfajn to hold rates and signal future stimulus.
Central Bank of Turkey
Forecast: Likely to cut rates by 50bps on October 20
Analysis: After cutting rates at its past seven meetings consecutively, the Central Bank of Turkey (momentum -0.18 and aggregate trend -1.13) is increasingly under political pressure from Prime Minister Erdogan to “do more”, and will likely cut rates by at least 50bps at its policy meeting this week.
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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