It is well known that markets hate uncertainty. Bad news, then, that by one measure the world economy is throwing up more nasty surprises for investors
T IS WELL known that markets hate uncertainty. Bad news, then, that by one measure the world economy is throwing up more nasty surprises for investors. Citigroup’s global economic-surprise index , which measures the degree to which macroeconomic data announcements beat or miss forecasts compiled by Bloomberg, has fallen into negative territory for the first time since November . Since the summer of 2020 economic indicators had tended until recently to surprise on the upside.
Measures of economic surprises appear to be a useful way to gauge market sentiment. When the economy is booming data releases will typically be better than analysts expected, boosting the CESI. During an economic downturn, economic statistics will fall below the consensus estimate, leading to negative surprises. From June 2020 to July 2021, when the CESI for America was positive thanks to upbeat employment, inflation and housing figures, the S&P 500 index of big American firms rose by 38%.
In a paper published in 2016 Chiara Scotti, an economist at the Federal Reserve, constructed her own surprise index based on five indicators: GDP, industrial production, employment, retail sales and manufacturing output. America’s index also measured personal income. Ms Scotti found that positive economic surprises in America were associated with appreciation of the dollar relative to the euro, pound sterling and yen.
But the surprise index can be hard to interpret. The CESI includes both backward- and forward-looking macroeconomic indicators, and is weighted in favour of newer releases and those that tend to have the biggest impact on markets. Because the index reflects economic performance relative to expectations, it can be negative during expansions if forecasters are too optimistic, and positive during contractions if they are too gloomy.
Ireland Latest News, Ireland Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Why inflation looks likely to stay above the pre-pandemic normMany forecasters expect that annual inflation will soon ebb. Yet some indicators point to more price pressure to come in the near term
Read more »
Three mechanisms for crypto contagionWere bitcoin to drop below $15,000, liquidations could accelerate so much that posting enough collateral or raising funds to stop the fall may become hard
Read more »
Experienced climber fell 150m to his death while trekking up Lake District fellAndrew Hansler's favourite pastime was climbing and he was at the front of a climbing club walk when he fell
Read more »
With a pro-Orban prime minister gone, things are looking up in SloveniaA slide towards autocracy has stopped and the economy is roaring
Read more »
Nottingham records below average Polio vaccination take upNottingham records below average Polio vaccination take up after virus detected in London
Read more »
Are you experiencing summertime loneliness? Here's how to copeExpectations can struggle to meet reality as many people suffer with loneliness in the summertime.
Read more »