Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Minutes likely to continue hawkish trend on January 4
Analysis: Financial conditions have continued to improve since December’s FOMC statement—the second-most-hawkish* in years—and we anticipate the minutes will echo that tone. That said, with Fed momentum** already at 0.21, the markets will likely not be surprised by a hawkish set of minutes. However, if the minutes are (slightly) more hawkish than the statement, it could, according to the SF Fed, cause a larger than usual boost in yields.
Evans, Powell, and Lacker are all speaking this week, and we expect them to strike a neutral tone. Evans and Powell will likely sound cautiously optimistic; Lacker will likely come off a little more hawkish.
European Central Bank
Forecast: Mersch likely to be optimistic about innovation and the economy on January 6
Analysis: While the ECB’s sentiment leveled off during December, the bank’s momentum is still slightly hawkish (0.15). The only scheduled speaker this week is Yves Mersch, who is likely to focus on technological innovation and strike a positive tone in line with his current momentum: 0.21.
The Signal Team
* 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.