Turkey Cuts Rates, ECB Likely To Hold | Weekly Review And Preview

  • Tuesday, May 31, 2016

Welcome to Prattle’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: June hike on the table
Analysis: Last week’s speeches by Harker, Bullard, and Powell echoed prior remarks by Fed officials about the gradual path to normalization. Yellen also spoke on Friday afternoon…hinting to markets that a rate hike is a continuing possibility.

European Central Bank
In brief: More easing may be on the horizon
Analysis: While contending that systemic risks were contained, last week’sECB release included markedly dovish language. Earning a residual* score of -0.5, the tone of the communication indicates that more easing might be in store for the euro area.

Bank of Israel
In brief: Held rates
Analysis: They didn’t budge rates, but the Bank of Israel’s dovish language (-2.08) points to accommodative monetary policy for the foreseeable future.

Bank of Turkey
In brief: Cut rates
Analysis: As we forecast, Turkey cut the marginal rate by 50bps. However, sentiment from the communication was relatively neutral (residual 0.23)—suggesting that the easing cycle may be near its end.

Bank of Canada
In brief: Held rates
Analysis: Also as we expected, Bank of Canada (BOC) held rates—but not without some surprisingly hawkish talk. For instance, the BOC noted that “The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins.”

  • Preview

European Central Bank
Forecast: Likely to hold rates
Analysis: With their policy meeting on Thursday, the ECB will be the big player this week. Given the relatively stable, neutral trend in the ECB sentiment, we expect them to take little action this week. They may tinker with the TLTRO policy, but further rate cuts seem to be off the table (and other forms of stimulus also seem unlikely). We anticipate a “wait and see” statement.

Federal Reserve
Forecast: Brainard speech important for June
Analysis: While it should be a quiet week from the Fed, pay attention to Brainard’s speech. Brainard’s last monetary policy speech was in early March, and it was a notably dovish (-1.02).  At the time she was among the most dovish members of the FOMC, and, if she takes a hawkish tone this week, it will be yet another indicator of a June hike.

Bank of England
Forecast: Lips will be sealed on Brexit
Analysis: Mark Carney’s speech this week will likely skirt Brexit by focusing on financial stability concerns. While the BOE sees Brexit as a threat, Carney has already been publicly admonished for speaking out about Brexit and is likely to avoid the topic…and thereby avoid lingering political entanglements.

Bank of Turkey
Forecast: Likely to signal future policy direction
Analysis: The Bank of Turkey’s minutes release will indicate whether the bank is done with rate cuts—or if the new leadership wants to go further.

Swedish Riksbank
Forecast: Likely to signal future policy direction
Analysis: The Riksbank will also provide some guidance about its upcoming policies in its non-monetary policy meeting. Specifically, they’ll likely explain their apparent disappointment over the results of negative rates.

The Prattle Team

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* The residual score of a communication is the hawkishness or dovishness of that communication relative to the average hawkishness or dovishness of communications of the same kind.