The World Was Dovish And The Fed Won’t Hike | Weekly Review And Preview

  • Monday, June 13, 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

Global View: Last week saw a flood of dovishness from seminal speakers at the Federal Reserve, European Central Bank, Bank of Japan, and Bank of Canada. Similarly, the Reserve Bank of Australia and the Reserve Bank of New Zealand issued dovish statements, while the central banks of Russia and Korea both cut rates. The Bank of Brazil was the only hawkish institution last week.


*Deputy Governor

Federal Reserve
In brief: No June hike; July possible
Analysis: Janet Yellen’s speech scored a slightly dovish -0.20 with a residual of 0.05, indicating that the FOMC is unlikely to raise rates in June and that July is a distinct possibility. Rosengren made similar remarks (scoring -0.13) suggesting the pace of economic growth may justify a hike in the coming months.

European Central Bank
In brief: Bracing for Brexit vote by focusing on regulatory issues
Analysis: With a nod to the impending Brexit vote, last week several ECB officials spoke about regulatory issues with an eye toward the ECB’s role in mitigating systemic risk and providing stability.

Bank of Japan
In brief: Defended current policy
Analysis: In a very dovish speech (-1.37), Deputy Governor Hiroshi Nakaso defended negative interest rate policy and suggested that the BOJ is prepared to move rates further into negative territory soon.

Bank of Canada
In brief: Addressed issue of low oil prices
Analysis: In a speech scoring -0.65, Governor Stephen Poloz dovishly posited that low oil prices were still working their way through the Canadian economy.

Reserve Bank of Australia
In brief: Held rates
Analysis: Justifying its May cut in a strongly dovish statement (-2.02), the RBA held rates at its meeting last week.

Reserve Bank of New Zealand
In brief: Held rates
Analysis: The RBNZ announced that its rates would remain unchanged in a statement scoring slightly hawkish at 0.70. While less dovish than the RBA, the decision and statement were telling of the region’s overall sentiment.

Bank of Korea
In brief: Cut rates by 25bps
Analysis: The Bank of Korea issued a hawkish statement coupled with a rate cut of 25bps. The language of the statement, which scored a slightly hawkish 0.34, signalled that the bank is unlikely to cut rates again any time soon.

Bank of Russia
In brief: Cut rates by 50bps
Analysis: Similarly to Korea, the Bank of Russia (RUS) coupled hawkishness with a rate cut, but issued both more hawkish language (1.03) and a larger rate cut (50bps).

Central Bank of Brazil
In brief: Issued hawkish language
Analysis: Issuing a statement scoring 2.32, the Central Bank of Brazil (BRA) was very defensive last week–likely because of the country’s current political turmoil and the upcoming summer Olympics.

  • Preview

Federal Reserve
Forecast: Likely to hold rates
Analysis: The Fed is unlikely to raise rates at its upcoming FOMC meeting due to its recent sentiment trend of 0.29 not matching the level of 0.40 achieved ahead of the December rate hike. If this trend continues–or accelerates–a July hike is a reasonable possibility, but if it decelerates, a hike will likely be on hold until September or later.


Bank of England
Forecast: Likely to hold rates
Analysis: Despite a decline in sentiment during recent weeks, the BOE is unlikely to engage in stimulus–or any other policy action–at its monetary policy meeting this week due to the June 23 Brexit vote.

Swiss National Bank
Forecast: Likely to hold rates
Analysis: Heavily affected by uncertainty leading up to the Brexit vote, the Swiss National Bank is similarly unlikely to make any changes to its policy at its monetary policy meeting this week.

Bank of Japan
Forecast: Likely to hold rates
Analysis: BOJ sentiment has risen from rather negative toward neutral recently, suggesting they are unlikely to push rates further negative at this week’s meeting. However, given their propensity for surprising the market, stimulative action is not out of the question…especially on the heels of weak manufacturing data.


European Central Bank
Forecast: Likely to defend European region ahead of Brexit vote
Analysis: With five speakers, including Mario Draghi, scheduled this week, we expected to see veiled references to the strength and stability provided by the Euro region as the Brexit vote approaches.

Bank of Canada
Forecast: Likely to clarify stance on upcoming policy action
Analysis: After Poloz’s dovish speech last week, BOC speakers this week are likely to clarify their stance on whether fiscal stimulus will suffice to bolster the Canadian economy or if they will need to engage in monetary stimulus soon as well.

Reserve Bank of Australia
Forecast: Speeches to focus on monetary policy
Analysis: This week’s speeches from the RBA will be very telling with regard to whether we can expect further rate cuts from RBA after their dovish monetary policy announcement last week.

The Signal Team

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