Central bank communication over the years has become increasingly important for financial markets, with investors closely scrutinizing and actively trading central bank messaging. In this context, Barclays has created a proprietary ECB Communication Monitor that systematically quantifies and decomposes the ECB Governing Council (GC) commentary into three communication trackers for monetary policy, inflation outlook and growth outlook.
The trackers use a webscraping/text analysis methodology and are meant to capture the ECB Governing Council’s directional communicated assessment of monetary policy, inflation and economic activity. The monetary policy communication component could help to identify trading opportunities in euro swaps, for example.
The framework also provides more granular insights into ECB commentary. For instance, the Barclays’ team can identify which Governing Council members have been driving shifts in the tone of commentary, and quantify the extent of any disagreements amongst Governing Council members. Lately, there are indications that the ECB’s shift towards more hawkish communication has been losing momentum.