Hawkish Fed, Mixed Policy in Asia | MACROCAST

  • Monday, December 19, 2016

Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.

Federal Reserve
Forecast: Yellen likely to speak about improving labor market on December 19
Analysis: With Fed momentum* (0.10) only slightly more hawkish than Yellen’s recent scores (momentum 0.07), we expect Yellen to remain on the slightly dovish side of Fed trend during her speech on Monday. She will likely still address improvements in the labor market, justifying a slightly steeper rate path for 2017.

Bank of Japan
Forecast: Likely to hold rates and discuss raising yield target on December 20
Analysis: Over the last four months, BOJ aggregate trend has risen more than 1.5 standard deviations, and momentum has reversed from a very dovish low of -0.95 to a somewhat hawkish current high of 0.22. This reversal—combined with dramatic declines in the JPY—has sparked speculation of BOJ rate hikes for the first time in years. The data does not yet point to such significant policy tightening, but we do anticipate some discussion of raising the yield target at the bank’s meeting this week.

Reserve Bank of Australia
Forecast: Minutes likely to score dovish on December 20
Analysis: On the heels of the RBA’s final policy meeting of 2016 scoring extremely dovish, we anticipate this week’s meeting minutes will score somewhat dovish with a discussion of commodities and housing posing systemic risks to the Aussie economy. This will likely push back on the Organisation for Economic Co-operation and Development (OECD)’s suggestion that the RBA is poised to raise rates in 2017.

Swedish Riksbank
Forecast: Likely to hold rates, signal willingness to increase asset purchases on December 21
Analysis: With inflation expectations on the rise, sentiment remaining steady, and slightly hawkish momentum (0.17), we do not anticipate the Riksbank will cut rates or increase asset purchases at this time. However, the bank will likely signal further stimulus in the near term.

Bank of Taiwan
Forecast: Likely to hold rates, signal improved 2017 outlook on December 22
Analysis: Although sentiment from the Central Bank of Taiwan has been trending dovish (momentum -0.51), recent accusations about currency manipulation—coupled with a modestly improved forecast for 2017 growth—indicate that the bank will likely keep rates steady while adopting a neutral or slightly hawkish tone.

Central Bank of the Republic of Turkey
Forecast: Likely to hold rates on December 20
Analysis: With TUR sentiment declining after a repo rate hike in November and Prime Minister Erdogan pressuring central bankers for lower rates, another rate hike at the bank’s meeting this week seems out of the question. In fact, it is somewhat more likely that the bank will bend to political pressure and reverse course to cut rates. That said, momentum is still somewhat hawkish at 0.27, so a rate hold is the likely outcome.

The Signal Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as the 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. Aggregate trend is the overall sentiment of the bank calculated using a LOESS fitting of trend using a 12-month window.

** 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. Momentum is the average of the last ten residual scores.

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.