The Fed Held, And The World Waits on Brexit Vote | Weekly Review And Preview

  • Monday, June 20, 2016

Welcome to the Signal’s “Weekly Review and Preview.” Each week, we analyze the most important communications from the previous week and give our thoughts on upcoming releases.

  • Review

Federal Reserve
In brief: Held rates
Analysis: The Fed held rates last week–as expected–and issued a slightly more dovish statement than the average for FOMC statements over the last year. While more dovish than average, the communication didn’t match March, which technically leaves the option open for a July hike despite widespread opinion to the contrary.

Bank of England
In brief: Held rates
Analysis: The Bank of England (BOE) held rates ahead of the Brexit vote as expected. The statement scored neutral (0.02), but this follows several weeks of messaging from the BOE that has utilized a dual strategy of talking up the British economy and explaining the economic risk posed by Brexit. As the vote has drawn closer and the risks have become more pronounced, the BOE’s sentiment has dropped significantly.


European Central Bank
In brief: Promised stability
Analysis: Last week, three of the four European Central  Bank (ECB) policymakers who spoke made veiled references to stability, banking, or other obviously Brexit-related policy issues. The general theme was that the ECB will maintain stability and reasonable inflation.

Swiss National Bank
In brief: Held rates
Analysis: The Swiss National Bank (SNB) held rates as expected. Like the ECB policymakers, the rest of Europe is holding its collective breath for the Brexit vote.

Bank of Japan
In brief: Held rates
Analysis: The Bank of Japan (BOJ), with its rate hold and surprisingly hawkish statement (1.74), has indicated that it is not interested in moving rates further negative. Instead, it is likely that the BOJ will resume asset purchases.

Bank of Canada, Reserve Bank of Australia, Norges Bank
In brief: Cautiously optimistic
Analysis: While noting that their economies are still adjusting to lower oil prices, officials from resource-rich countries (BOC, RBA, and Norges Bank) emphasized that the worst is behind them.

Bank of Korea
In brief: Defended rate cut
Analysis: In a speech last week, new Bank of Korea Governor Lee Ju-yeol defended the bank’s recent rate cut, scoring dovish at -0.61. Recently voted in as the bank’s new governor, Ju-yeol argued for increased transparency and stated that, “we should change our fundamental patterns of behaviour and thinking.”

  • Preview

Brexit: As the EU referendum approaches, our sentiment data will be instrumental in projecting the reactions of each major central bank. If you’re interested in detailed research on this market-moving decision, please contact us and we will share a report written by our colleagues at LH Meyer, Inc.

Norges Bank
Forecast: Likely to hold rates
Analysis: With sentiment trending fairly neutral, we expect the Norges Bank to hold rates ahead of the Brexit vote.


Bank of Turkey
Forecast: Likely to hold rates
Analysis: Although it has cut rates at each of its last three meetings, we currently see a relatively neutral trend from the Bank of Turkey and expect a rate hold this week to gauge market reaction amid Brexit turmoil.

Federal Reserve
Forecast: Yellen to express uncertainty 
Analysis: Yellen’s testimony before the Senate and the House of Representatives this week will likely lack concrete details considering its proximity to last week’s FOMC meeting. The Q&A afterwards may force her to clarify her stance, but this is rather unlikely. 

European Central Bank
Forecast: Speeches and meetings to discuss Brexit
Analysis: The European Central Bank (ECB) has several speakers, including Governor Mario Draghi, and a non-monetary policy meeting this week. These communications will likely reveal the ECB’s plans for managing the outcome of the Brexit vote.

Reserve Bank of Australia
Forecast: June meeting minutes to signal rate cut path
Analysis: This week, several key speeches from Reserve Bank of Australia (RBA) policymakers, along with the release of the June meeting minutes, will signal whether the RBA intends to cut rates further or hold them for the foreseeable future.

Bank of Japan
Forecast: Speeches to provide context to April minutes, signal rate path
Analysis: Haruhiko Kuroda and several other policymakers from the Bank of Japan (BOJ) will deliver speeches this week that may provide context to the April meeting minutes as well as clarifying the bank’s plans on reducing rates further, as previously hinted, or increasing asset purchases, as suggested last week.

The Signal Team

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