Welcome to Prattle’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Forecast: Likely to hold rates on February 1
Analysis: Fed sentiment* has trended dovish since the December rate hike, and momentum** now sits at a nearly neutral 0.13. This decline in sentiment, along with weaker than expected Q4-GDP figures, suggests that the FOMC statement is unlikely to signal a March rate hike. We expect the FOMC statement to maintain the Fed’s recent hawkish tone while scoring slightly less hawkish than the November and December statements.
European Central Bank
Forecast: Draghi likely to endorse neutral policy
Analysis: Although economic conditions continue to improve, increasing political uncertainty in the Eurozone will likely cause Draghi and Coeure to maintain the bank’s neutral trend this week.
Bank of Japan
Forecast: Likely to hold rates on January 31
Analysis: Economic conditions are gradually improving, but the BOJ’s mood is still fairly neutral (-0.19). This suggests that the BOJ will continue stimulus for the time being. That said, recent economic growth makes additional stimulus unlikely unless the economy significantly weakens.
Bank of England
Forecast: Likely to hold rates on February 2
Analysis: The few Bank of England communications released thus far in 2017 have scored fairly dovish, reversing the bank’s rising sentiment in December. With momentum remaining neutral to slightly hawkish (0.21), we anticipate a rate hold coupled with signals of a future rate cut to alleviate the potential economic burden of Brexit.
Reserve Bank of Australia
Forecast: Debelle likely to signal whether February rate cut is on the table
Analysis: With minimal RBA communications released this month, Guy Debelle’s speech this week will serve as the first indication of how the bank is viewing persistently low inflation, likely signalling whether to expect a rate cut next week.
Bank of Canada
Forecast: Poloz likely to signal moderate confidence in economy
Analysis: As U.S. politics cause economic uncertainty in Canada, Stephen Poloz of the BOC will likely express confidence in the Canadian economy while simultaneously signalling stimulus may be necessary. This could result in a slightly hawkish speech followed by a more dovish press conference, maintaining the BOC’s fairly dovish momentum (-0.39).
Forecast: Kerstin af Jochnick to focus on regulatory framework
Analysis: Although Kerstin af Jochnick is unlikely to address monetary policy, she could score dovish if she mentions the potentially negative effects of the changing regulatory framework due to Basel III. Despite the downside potential, her speech will likely be framed more positively to express sentiment similar to the Riksbank’s currently neutral momentum (0.19).
Forecast: Ida Wolden Bache likely to shed light on future policy
Analysis: With Norges bank sentiment steadily decreasing, Ida Wolden Bache’s speech this week will indicate whether the bank will move further away from the hawkish stance it held at the end of 2016.
The Prattle 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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