Text Analytics Trends Point to Fed, RBA Policy

  • Monday, April 3, 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 Research Signals Analysis

Federal Reserve
Forecast: Minutes likely to score neutral or slightly dovish
Analysis: After a hawkish* surge heading into the March FOMC meeting, Fed trend has leveled off to near neutral (momentum** 0.07) over the last two weeks. This week, the FOMC Minutes being released on April 5 promise to provide context to the March rate hike. Given that the FOMC statement scored neutral (residual 0.05) despite the committee hiking rates 25bps, the minutes are likely to reflect a similarly neutral tone. Considering the recent decline in sentiment from both FOMC statements and minutes, this week’s minutes will likely score on the dovish side of neutral, which may come as a surprise to the markets.

Federal Reserve Sentiment Analytics Quantitative Signals

European Central Bank
Forecast: Speakers likely to continue neutral stance
Analysis: Coeure, Draghi, Constancio, and Mersch are likely to reinforce the ECB’s neutral policy stance (momentum 0.03) in each of their respective speeches this week. Constancio’s speech is likely to be the most substantive of the bunch, but all four speakers will probably adhere to the bank’s neutral or slightly hawkish policy trend, suggesting they are still on track to remove policy accommodation in late 2017 or early 2018.

Bank of England
Forecast: Financial Policy Committee report likely to score neutral
Analysis: The only scheduled communication from the BOE this week is a record of actions taken at the Financial Policy Committee meeting on March 22, 2017. This record is likely to score a bit more hawkish than current BOE momentum (-0.05), though probably still neutral due to the BOE’s Brexit-related holding pattern.

Reserve Bank of Australia
Forecast: Likely to hold rates, issue neutral policy statement on April 4
Analysis: RBA trend has risen significantly since the start of 2017, especially in the last six weeks. Although momentum is still somewhat dovish (-0.39), the trajectory of RBA sentiment suggests that policymakers are considering U.S. tightening and rising housing costs in the Aussie economy as major upside risks. Nevertheless, several RBA policymakers have recently alluded to medium term risks associated with the Chinese economy, and they continue to point to low, stable inflation (absent housing costs) as reasons to be cautious about policy tightening. These roughly balanced risks suggest the RBA will hold policy and issue a moderate or slightly dovish policy statement. Speeches later in the week by Lowe, Heath, and Debelle are likely to reinforce this neutral tone, though Debelle may break from the pack with a more hawkish message.

Federal Reserve Sentiment Analytics Quantitative Signals

Norges Bank
Forecast: Olsen likely to reaffirm neutral policy stance
Analysis: The Norges bank is more dovish than it was a month ago, but still trending neutral (momentum 0.06). This week’s speeches by Olsen and Nicolaisen are likely to maintain this neutral posture as Olsen has moved from a rather hawkish position in late 2016 to a neutral position in recent weeks.

Swedish Riksbank
Forecast: Speeches likely to continue neutral or slightly dovish policy messaging
Analysis: The Riksbank has trended increasingly dovish since December and is now on the dovish side of neutral (momentum -0.13). This week’s speakers, Floden and Ohlsson, are both infrequent speakers for the bank and thus will likely stay on message with a neutral or slightly dovish tone.

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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