Forecasts forecasts everywhere but not a help they are

Banks love forecasts, we love forecasts (if only to pick them apart), central banks love forecasts, governments love forecasts.

The world is forecast mad and there's some serious people with fingers on very big buttons that listen to these forecasts and make huge decisions.

Forecasts change like the weather and none more so than in the banking world

Take BNP Paribas who now don't see a Fed hike for the rest of 2016 and 2017

"Essentially, we expect the fragile risk environment to preclude tightening in H1 and slowing activity to argue against further rate hikes thereafter,"

"The shift in Fed expectations clearly has big implications for the dollar outlook and we are currently reviewing our USD forecasts accordingly."

Here's what they were saying Jan 6th as noted by Eamonn;

BNP see an 80% chance of a hike in March

"BNP have their own inflation forecasts (higher) and suggest that if these are correct then the Fed will hike again in March."

In the space of just over a month they've not only run from one side of the boat to the other, they've jumped off and have sunk to the bottom of the sea.

That's not even the most priceless part, this is:

"The shift in Fed expectations clearly has big implications"

The frigging expectations come from people like BNP in the first frigging place! Basically they got scared of their own reflection in the mirror.

They're not alone.

Danske Bank has pushed back their next Fed hike call to September stating:

"We also expect the Fed to postpone the next Fed rate hike to September, as we believe the tighter financial conditions will result in a pause. As such, the Fed is likely to remain dovish in coming months but this is also already what markets are expecting with the first full 25bp Fed rate hike only being priced in by mid-2018."

Err, "priced in by mid-2018" by firms like Danske per chance?

Ok, I'm having a little Friday rant. Adam had his yesterday so it's my turn

My problem is that people are too rigid with forecasts. If 2017 inflation forecasts get lowered by a pip the dove feathers start flying in ECB HQ. Not one single person in the ECB back offices are any better at predicting inflation 2 years out than you or I, and no amount of millions spent on research and economic or financial models help them. Not. One. Bit.

There's reasons we don't like giving price forecasts at ForexLive

  1. We're not stupid enough to believe we'll ever be right
  2. We're not stupid enough to think that situations aren't constantly changing
  3. We're not stupid enough to believe we'll ever be right

I made forecasts in 2014 and repeated them all last year. I said both the Fed and BOE would raise rates in 2015. Why? It was simple.

  1. The Fed were at zero in interest rates and had been there too long
  2. Every Fed person bar one said rates were going up

Two simple reasons, not inflation forecasts, not jobs forecasts, not bank forecasts, not Fed forecasts. What then happened was the data made the case for them to hike but the Fed were going that way anyway

I got it wrong with the BOE. Why?

I didn't see the one big thing that meant the BOE could sit on the fence for longer. They weren't at the bottom with rates. They had the margin that the Fed didn't. Again, we had every MPC member bar one saying rates would rise but the clincher was the current level. Not inflation forecasts, not jobs forecasts, not BOE forecasts.

You get the picture now (hopefully).

The most any of us can do is align ourselves with what's happening in the world day to day and keep watch for when things change. That's the only guide we have in trying to stay one step ahead. We can only listen to what the fundamentals or the central banks are telling us at the time and assess what they mean for the future, not what some predicted future means for now.

But don't dismiss forecasts in their entirety. I'm all for listening to forecasts as what they do well is give us a view of what various people or institutions are thinking. For trading that can be pure gold. If most of the market thinks the Fed won't hike again until 2017. There's a trade if the data or Fed say different.

If everyone forecasts the Euro going to parity, there's a trade if inflation picks up.

Laugh at forecasts but dismiss them at your peril. Do the sensible thing and use them to trade against the stupidity within them.