Quantifying This Week’s BOC Meeting

  • Monday, April 10, 2017

Welcome to Prattle’s “Macrocast.” Using our proprietary central bank analytics, we provide analysis and forecasting on the market-moving releases in the week ahead.

Central Bank Communications Text Analysis

U.S. Federal Reserve
Forecast: Yellen likely to sound modestly hawkish on April 10
Analysis: Although Jim Bullard and Neel Kashkari are both scheduled to speak, the highlight of the week will be Janet Yellen’s speech at University of Michigan on April 10, her first since the March FOMC meeting minutes were released. It is unlikely Yellen will deviate much from the Fed’s recent moderate* tone (momentum** 0.15), but she may address the hawkish implications of the committee’s discussion about curtailing the reinvestment of proceeds from asset purchases. She is unlikely to reveal a clear timetable at this event, but she could signal whether changes to the asset purchase program can be expected before year-end.

Bank of Canada
Forecast: Likely to hold rates and signal future hikes on April 12
Analysis: After trending increasingly hawkish through the first two months of 2017, the BOC has been less optimistic recently (momentum 0.02). This neutral posture suggests the BOC will hold rates this week, though the Monetary Policy Report, speech by Stephen Poloz, and press conference are likely to signal rate hikes later this year, partly due to concerns over rising housing costs, but also in an effort to keep pace with the U.S.

Central Bank Communications Text Analysis Investment Research Signals

Bank of England
Forecast: Credit Conditions Review likely to reveal stress, underlying strength in UK
Analysis: Although UK credit conditions have declined since the Brexit vote, all signs point to resilience. The quarterly credit review is likely to echo this general resilience in the UK economy as well as the BOE’s current tone (momentum -0.05).

Reserve Bank of Australia
Forecast: Financial Stability Review likely to point to improving conditions
Analysis: The Financial Stability Review released this week is likely to echo the RBA’s rising trend while citing low inflation and continued economic growth as positive signs. However, the release will likely reflect concerns about a possible real estate bubble.

The Prattle 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.

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