Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Speeches will point to a hike
Analysis: With eight speeches scheduled, Fed policymakers are less active than last week–but still very vocal. We expect that Lacker, Fischer, Mester, and George will all speak specifically about monetary policy and will all contend for a rate hike in the very near future. While the Fed’s not trending* particularly hawkish (momentum** 0.11) at the moment, we expect the hawks will begin making their case now so that a December hike becomes a foregone conclusion.
European Central Bank
Forecast: Speeches to indicate neutral to slightly hawkish policy stance
Analysis: Although Mersch (October 3) and Praet (October 4) are giving speeches this week, Draghi’s comments (October 8) at the IMF/World Bank meeting are likely to be the biggest market mover. For context, Draghi is trending just above neutral (momentum 0.26)…as is the ECB (momentum 0.18).
Reserve Bank of Australia
Forecast: Likely to cut by 25bps on October 4
Analysis: With momentum at -1.02 and overall sentiment diving–below the level it was before each of the last two rate cuts–the RBA will likely cut. One caveat though: the bank might not want its first move under new leadership to be pushing rates to another all-time low when housing prices are still rising. While a cut is highly likely, it is possible that Governor Lowe will hold off at this meeting and strongly signal a cut in November.
Bank of England
Forecast: Chatter points to no more stimulus
Analysis: Deputy Governor Broadbent is the only speaker this week (October 5), and we expect his speech will fall in line with the hawkish chatter we have seen from the BOE lately. The bank is in a holding pattern as it waits for the countervailing forces of Brexit and the August stimulus measures to play out.
Reserve Bank of India
Forecast: Likely to hold rates
Analysis: With a new, committee based structure in place, the RBI meeting this week (October 4) marks a historic occasion. This is the first time a rate decision is being made by a group instead of the governor. Given these circumstances and the bank’s relatively neutral trend (momentum 0.06), we expect no policy changes.
Bank of Canada
Forecast: To continue slightly hawkish rhetoric
Analysis: Senior Deputy Governor Carolyn Wilkins is the only speaker this week (October 6), so we do not anticipate any big moves from the BOC. Wilkins (momentum 0.12) will likely reinforce the recent slightly hawkish trend from the BOC (momentum 0.36).
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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