Central Bank Doves Take Cover

Please see below the latest ‘Chart of the Week’ from State Street Global Markets.


This week Tim Graf, head of Macro Strategy for Europe, Middle East and Africa, notes that media coverage of major central banks, while still having a dovish tone, is moving back towards neutral, as policymakers suggest little appetite for further aggressive monetary easing. He comments, “Through our partnership with MKT MediaStats, we are able to measure the intensity of words and phrases that have hawkish or dovish connotations in media coverage of global central banks. We have found that the differential between hawkish and dovish language intensity tends to lead to changes in short-term interest rate expectations.

“In Q2 2019, the tone of coverage of both the Federal Reserve (Fed) and European Central Bank (ECB) turned sharply dovish ahead of summer rate cuts from both central banks and the re-opening of the latter’s asset purchasing programme. Now, language intensity is moving back towards neutral for both, and the Fed has signalled only modest rate reductions to come. Perhaps more interestingly, the internal pushback against the recent easing at the ECB pushed coverage intensity to the least dovish level of the last five months. Outgoing ECB President, Mario Draghi’s final meeting this week is expected to be a non-event, but he leaves the post likely having exhausted the central bank’s near-term willingness to provide policy support. In our view, the ECB looks to be on hold for a long while.”

Central bank coverage moving towards neutral

Source: State Street Global Markets, Bloomberg

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