TMI Snapshot:  Update on Underlying Inflation Expectations from Our Text-Mined Indicators

TMI Snapshot: Update on Text-Mined Inflation Indicators - Supply Disruptions & Crude Push BEs Higher

Introducing TMI Data Science: Delivering Alpha With Custom NLP-Based Leading Indicators

Managing Director

Elan Gore

TMI Data Science

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, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining 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.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Macroeconomics

<ul>
<li>Our text-mined Inflationary-Deflationary Diffusion Index hit its highest reading since 9/2018 in late March at +3.4x STDEVs, but pulled back in April MTD on partial alleviation of extreme supply disruptions</li>
<li>The Diffusion Index has been 74%/65% correlated with 5yr5yr Fwd inflation rates in the T12/T24M, and measures the relative momentum of inflationary/reflationary expressions in online media relative to deflationary/disinflationary expressions</li>
<li>Tracking reports of supply constraints, disruptions and shortages, maximum pressure was clearly seen in February at &gt;2x STDEVs, leading the recent peak in the GSCI; while momentum is still positive, the situation has improved following the Texas freeze and Suez Canal blockage</li>
<li>Today's CPI report showed a second month of stability in Owners' Equivalent Rent (single largest CPI component at 24%) following relentless pressure averaging -11bps/month between February 2020-January 2021, reflecting improving sentiment among homeowners in the YTD; but the BLS report continues to see deceleration in primary rents, which is now notably diverging from private rent surveys</li>
<li>Our Rising Rents indicator, which measures the momentum of media reports of increasing US rents, broke out notably in March </li>
<li>Property management software provider RealPage reported a third consecutive month of sequential acceleration in national rents, with March rents up +0.7% M/M after +0.6% in February and +0.2% in January; Y/Y rent comps improved to -0.7% from February's -0.9% and 124 out of 150 metro areas seeing Y/Y increases in rent; other private surveys paint an even more optimistic picture of national recovery in rents and rent collection rates</li>
<li>While the Fed has repeatedly stated its objective of allowing inflation to "run hot", the recent pause in the GSCI, 5yr5yr and cyclical/value outperformance suggests inflationary pressures may be taking a breather from the breakneck pace seen in February-March</li>
<li>The underlying environment clearly remains reflationary, but evidence of a potential overshoot in market-based indicators (TIPS breakevens at 13-year highs, for example) may require further cooperation from the commodity complex to justify elevated expectations</li>
</ul><div class="content-highlight"><p>TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary tools text-mine 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 &amp; individual equities. </p></div>


Our text-mined Inflationary-Deflationary Diffusion Index hit its highest reading since 9/2018 in late March at +3.4x STDEVs, but pulled back in April MTD on partial alleviation of extreme supply disruptions
The Diffusion Index has been 74%/65% correlated with 5yr5yr Fwd inflation rates in the T12/T24M, and measures the relative momentum of inflationary/reflationary expressions in online media relative to deflationary/disinflationary expressions
Tracking reports of supply constraints, disruptions and shortages, maximum pressure was clearly seen in February at &gt;2x STDEVs, leading the recent peak in the GSCI; while momentum is still positive, the situation has improved following the Texas freeze and Suez Canal blockage
Today's CPI report showed a second month of stability in Owners' Equivalent Rent (single largest CPI component at 24%) following relentless pressure averaging -11bps/month between February 2020-January 2021, reflecting improving sentiment among homeowners in the YTD; but the BLS report continues to see deceleration in primary rents, which is now notably diverging from private rent surveys
Our Rising Rents indicator, which measures the momentum of media reports of increasing US rents, broke out notably in March 
Property management software provider RealPage reported a third consecutive month of sequential acceleration in national rents, with March rents up +0.7% M/M after +0.6% in February and +0.2% in January; Y/Y rent comps improved to -0.7% from February's -0.9% and 124 out of 150 metro areas seeing Y/Y increases in rent; other private surveys paint an even more optimistic picture of national recovery in rents and rent collection rates
While the Fed has repeatedly stated its objective of allowing inflation to "run hot", the recent pause in the GSCI, 5yr5yr and cyclical/value outperformance suggests inflationary pressures may be taking a breather from the breakneck pace seen in February-March
The underlying environment clearly remains reflationary, but evidence of a potential overshoot in market-based indicators (TIPS breakevens at 13-year highs, for example) may require further cooperation from the commodity complex to justify elevated expectations
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary tools text-mine 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 &amp; individual equities. 

TMI Snapshot:  Text-Mined Inflation Indicators Take a Breather After February-March Breakout