Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.
Bank of England
Forecast: Likely to cut 25bps
Analysis: Although the aggregate BOE sentiment* trend looks very much like it did before the July meeting, recent policy meetings have presented a distinct dovish slope. Specifically, we have seen residual scores of 0.12 in April, -0.24 in May, -0.15 in June, and -0.28 in July. Given this trend, as well as weak economic data and market pressure, we expect the BOE will engage in stimulus. Data is declining in almost every facet of the British economy, aside from manufacturing, and the market has priced in a 96% chance of a 25bps rate cut. This means that Carney is likely to follow one of two paths: 1. He may cut rates by 25bps but issue a modestly hawkish statement indicating the BOE does not want to do much more until the market settles down, or 2. He may take a page from Kuroda’s playbook and engage in an alternative measure that signals willingness to act, but is less significant than a rate cut. Either way, we anticipate that the market will view the move as less dovish than expected.
Reserve Bank of Australia
Forecast: Likely to hold
Analysis: Although its sentiment sits in slightly negative territory, the RBA’s recent trend has been fairly flat, indicating a rate hold for this week. While the market has priced in 60% odds of a cut, we see a hold as more likely with the RBA expressing continued concern about a housing bubble. We expect the hold will be coupled with dovish language, indicating a continued willingness to act if inflation remains stubbornly low.
Bank of Taiwan
Forecast: Likely to hold
Analysis: After several rate cuts in recent months, Taiwan is likely to wait and see this week. They have shown little appetite for large moves (recent cuts have been just 12.5bps) and, with the Fed appearing poised to tighten this year and the TWD still near a five-year low, Taiwan is unlikely to cut rates further. However, their currency is beginning to climb out of that hole, so we expect Taiwanese central bankers to signal a willingness to cut further.
Forecast: Kaplan to signal rate path
Analysis: As we enter the August doldrums, the only speaker scheduled this week is Robert Kaplan. After a dip in his scores in March, his last couple communications have been increasingly hawkish, and we expect Kaplan’s trend to continue in this direction. We anticipate that he will confirm the probability of a rate hike sometime this year, possibly in September.
European Central Bank
Forecast: To express confidence in the euro economy
Analysis: The ECB has a non-rate-setting governing council meeting this week. The bank has been trending hawkish, so we expect it to continue to emphasize the strength of the European economy in the ongoing wake of the Brexit vote.
Bank of Japan
Forecast: Minutes to provide insight
Analysis: BOJ will release the minutes of its June meeting where the bank–rather hawkishly–held rates. The minutes should provide insight into last week’s underwhelming stimulus measures and indicate if bolder policy is around the corner.
The Signal Team
*Raw scores represent the tone of a communication compared to the average of all communications. Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker.