Daily BriefsMacro

Macro: TMI Thematics: Cyclical Rotation Through The Lens of Text Mining and more

In today’s briefing:

  • TMI Thematics: Cyclical Rotation Through The Lens of Text Mining
  • UK: Unemployment Accelerates in Aug-20

TMI Thematics: Cyclical Rotation Through The Lens of Text Mining

By Elan Gore

  • As the street warms up to a potential Biden victory, arguments for improving equity breadth and cyclical rotation are starting to emerge again
  • Financial media references to a cyclical rotation saw a multi-STDEV spike in June, which coincided with a significant and notably enduring lift in the ratios of US industrials-to-staples and transports-to-staples 
  • Our testing highlights the US transports-to-staples ratio as the most correlated with the cyclical rotation theme, but we see similar action in the copper/gold ratio and EM currencies
  • In the past 10 days, our text-mined data shows an incipient pro-cyclical move, but its momentum has yet to fully turn net-positive
  • Calls for a cyclical rotation softened through the September correction, COVID-19 second wave fears and more recent fiscal stimulus uncertainty; but the cyclical/defensive sector ratios endured as the structural reframing of a Biden presidency as an inflation-positive outcome went mainstream
  • While historically “cyclical rotation” and “value rotation” were strongly correlated, we have seen a decoupling in these themes due to the heavy burden of the COVID-19 crisis on financials and energy
  • Economists have pointed to the increased likelihood of a vaccine in H1 as a driver of recent bullishness and inflationary optimism, but observations from text mining and from the Superforecaster survey (Good Judgement Project) do not suggest new positives here
  • Predictably, at this stage of post-pandemic recovery the focus of cyclical rotation is on industrials and materials (particularly mining & construction materials), with a Biden win implying elevated infrastructure spend

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities. 

UK: Unemployment Accelerates in Aug-20

By Phil Rush

  • The unemployment rate rose to 4.5% in Aug-20, with the 0.2pp surprise associated with revisions from a methodological change. The underlying rise was slightly smaller than we assumed, but still marked an acceleration consistent with our 4.8% forecast for Q3.
  • Vacancies are rising but remain consistent with a peak UR between 7% and 8%. Stricter lockdown restrictions than we assume could breach that, though. A normalisation in average wages implies unit cost pressures that offset the disinflationary implications.

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