Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Speakers likely to support upward revision in rate path
Analysis: Since mid-November, Fed trend* has been on the rise (momentum** 0.29). The tone of this week’s speeches (8 speeches by 6 speakers) is likely to continue this trend. January 12 will be the most important day with speeches by Harker, Evans, Lockhart, and Bullard all preceding a town hall by Yellen that evening. We anticipate that these speeches will target long-run risks to the economy, including concerns about overheating and downside risks. The tone of the speeches will likely support the upward revision in the rate path that the FOMC produced in December.
Forecast: Minutes likely to score neutral or slightly hawkish on January 12
Analysis: After a neutral December policy statement (residual 0.06), the minutes released by the Riksbank this week are not likely to contain any surprises. That said, trend has risen slightly in recent weeks, and momentum remains slightly hawkish (0.17). Consequently, the minutes may be slightly more hawkish than the statement, further diminishing expectations of additional easing.
Central Bank of Brazil
Forecast: Likely to hold rates on January 11
Analysis: When sentiment plummeted in Q3 and Q4 of 2016, it was clear that the Central Bank of Brazil would cut rates in November. Since then, sentiment has leveled off, currently hovering just below neutral (momentum -0.16). This weak but stable sentiment coupled with encouraging indications of rising inflation suggest that the bank will hold rates at this week’s policy meeting.
Bank of Korea
Forecast: Likely to hold rates on January 12
Analysis: Despite a recent dovish move toward neutral, BOK momentum remains slightly hawkish (0.19). That said, trend is nearly neutral, and recent remarks suggest that the bank will keep policy accommodative through 2017. While these remarks keep easing on the table, the BOK’s neutral trend points to a rate hold.
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.
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