Market expectations of global economic growth and inflation have oscillated considerably through 2015, and this has led to heightened volatility in investor forecasts for Federal Reserve policy and the performance of risk assets. Therefore, getting the best and most disciplined information on global data trends is, and will continue to be, critical going forward.
The GFICC Quantitative Research Group is a heavy user of global macroeconomic data releases. For example, we monitor on a daily basis more than 1,000 economic and inflation releases from over 50 countries. For each release we collect the actual macroeconomic number that is released to the market as well as the median of economists’ forecasts for that number. We then calculate the difference between the actual release and the median forecast in order to gauge how much of a “surprise” the actual release was relative to the market’s prior expectation. Finally, we compare this surprise measure to its own history to represent it in standard deviation terms.
One category of macroeconomic information that investors pay a lot of attention to are survey-based measures such as business and consumer confidence indicators. This is because survey-based releases tend to be timelier and contain more forward-looking information about global growth expectations than the more traditional macroeconomic releases such as GDP or industrial production. Indeed these types of traditional indicators tend to be released to the market with a one or two-month lag, whereas survey-based data are generally published soon after the survey has been conducted. More importantly, the surveys encapsulate information about future expectations. In business surveys, for example, purchasing managers and other business leaders are polled on topics such as their hiring plans and expected orders over the next few months. When analysed in detail, and on a global scale, such information helps us gain a better understanding of where the global economy is likely to move to in the near future.
The chart below shows our proprietary aggregate surprise index for 100 global survey-based activity data releases from 20 countries. When the index is positive this means that there have recently been more positive data surprises than negative data surprises in the dataset in question. The index is currently clearly showing that, for the first time since April 2015, recent survey-based releases are strongly surprising to the upside versus economists’ forecasts.
We also continually monitor surprises and underlying trends in relation to global inflation data releases. For instance, the following chart shows our proprietary global inflation trend index, which aggregates the underlying trends of over 300 individual inflation-related data series from around the world. Here we see clear recent evidence of a turnaround in the disinflation trend that has persisted since mid 2015.
Our composite indicators suggest that the peak force of negative activity data may have passed and that the recent tendency for inflation to surprise to the downside may also have ended. This is certainly supportive of the recent post-payroll shift in market expectations toward a Fed tightening in December.