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.
While Janet Yellen’s dovish speech was last week’s biggest bombshell, the European Central Bank, Swiss National Bank, Bank of Israel, Bank of England, and Bank of Japan had vital messages of their own.
The Fed sent a neutral signal to the markets last week as the hawkish thoughts of Dudley, Mester, and Williams were countered by the dovishness of Yellen and Evans.
Janet Yellen did her part to silence the hawkish chatter that led many to think an April rate hike was on the table. Her speech, with a score of -0.70, weakened the dollar but sent the U.S. Stock Market soaring as stocks eked out small gains in Q1.
While Dudley, Mester, and Williams continued to talk up an April rate hike, it was Evans who, perhaps, articulated the current sentiment best. During a speech in New York City, Evans advised that the FOMC should stick to “a very shallow path” for rate hikes as the year progressed.
With the support of the chair, it seems that the doves currently hold sway.
The Bank of Israel held rates steady and remained fairly neutral with a score of 0.09. In its statement, the bank cited price reductions, a surging shekel, and rising home prices in its decision to keep the rate at their historically low 0.1%. In December, Governor Dr. Karnit Flug said that a hike was unlikely in the near future, and Prattle sees no reason to dispute that statement.
The crop of communications coming from the Bank of England (BOE) last week revealed an anxious institution. The BOE is nervous about the harm Brexit chatter is doing to the pound (GBP) and expressed continued concerns about long term low growth in the region. With minutes to be released this week, we should be able to see how nervous the bank’s policy makers really are about the economy.
The European Central Bank only had one communication last week: a single interview with Benoît Cœuré. Like Draghi’s sentiments 3 weeks ago, Cœuré’s hawkish score clearly suggests the ECB will pursue alternative measures for further stimulus, but what is unclear is the precise nature of these alternative measures. Our best guess? A Targeted Long-Term Refinancing Operation (TLTRO).
In contrast to the ECB, the Swiss National Bank (SNB) talked negative rates and inflation. Despite apparent risks, Andrea Maechler declared that further rate cuts are possible, and Dewet Moser said, “if required, the SNB will continue to deploy unconventional methods for monetary policy implementation. Equally, it will continue to take account of the exchange rate situation and, if necessary, will intervene in the foreign exchange market.” We will continue to monitor the SNB’s declining sentiment and determine if a dovish trend is visible.
Last week Bank of Japan (BOJ) board member Yukitoshi Funo stated that “the BOJ is ready to steadily promote monetary easing using all three policy tools of quantity, quality [of asset buying], as well as interest rates.” Combined with other recent communications, it seems that BOJ will double down on negative rates, and our speaker sentiment suggests another cut is on the horizon:
This coming week hosts a plethora of speeches and communications, however it is the Federal Reserve, the Reserve Bank of Australia, and the Reserve Bank of India who will be the most salient policy movers.
There will be several speeches from key Fed officials: Rosengren, Kashkari, Evans, Mester, and George. Rosengren and Kashkari are likely to skirt monetary policy; Evans will likely be dovish; Mester and George will likely be hawkish.
The big news will be how dovish the minutes are from the FOMC’s March meeting. If they follow the trend established by Yellen’s speech, then a June hike will be in doubt. If they follow the pattern of other recent speakers, June may be on the table.
As we mentioned above, the BOE’s Financial Policy Committee minutes (released on Tuesday) will give us critical insight into the bank’s mood. Meanwhile, a talkative ECB will hopefully shed light on the alternative stimulus measures they plan to roll out in the near future.
Finally, both the Reserve Bank of India and the Reserve Bank of Australia have monetary policy meetings this week.
The Reserve Bank of India is trending dovish, so we are expecting a rate cut this week. The current trend is not steep enough to justify a large rate move, so we see cut of 25bps as more likely than 50bps.
The Reserve Bank of Australia (RBA) recently bounced hawkish, but is trending dovish once again. Economic forecasts look solid, but a strengthening Aussie dollar could very well prompt a rate cut this week. While the RBA’s trend has not fallen far enough for us to expect a cut this meeting, we do expect significant dovishness–setting up the possibility of a rate cut in the near future.
The Prattle Team