All of our macro themes remain at depressed levels of cohesion and attention – in short, we think that risky asset markets are operating without a dominant narrative.
However, there was a notable pickup – early drumbeats – in common knowledge about inflation in December.
We think the fairly sharp moves (relative to recent history) in precious metals and some commodities, for example, are indicative of the influence of a complacent narrative structure in the presence of even limited new information.
We have no fundamental thesis regarding inflation whatsoever. We have no idea if it is coming.
Nevertheless, we would expect similarly disproportionate impact from new information (in both directions, but especially favoring inflation) given the continued complacency.
There is no inflation narrative in the US. Attention and cohesion have completely collapsed, along with the narrative structure on most other dimensions.
As with the last several months continue to see election season-related rhetoric surrounding health care, housing and education inflation which continues to have only tangential relationship to market discussions.
We have also seen some increase in discussions of inflation related to ongoing tariffs, especially in agricultural commodities.
We also note the increased presence of Fiat News, which (in our opinion) reflects more common arguments that the Fed has room to and must act on any economic weakness.
We have no fundamental thesis regarding inflation whatsoever. We have no idea if it is coming. But we now consider the Common Knowledge of no inflation in the US to be a complacent narrative structure, and accordingly an asymmetric proposition.
Similarly to every other major topic we consider, Inflation narratives faded in both cohesion and attention in October.
Any inflation narrative exists almost wholly within political world as opposed to market world – for example, we continue to see election season-related rhetoric surrounding health care, housing and education inflation which continues to have only tangential relationship to market discussions.
The continued decline in sentiment appears to be related to these political inflation discussions.
Still, our conclusion from last month remains: a low attention narrative structure with very high fiat news and historically negative sentiment strikes us as one with higher than average asymmetry – especially in context of the strong common knowledge around central bank omnipotence.
As we noted in the last two monthly updates, our measure of attention on inflation narratives faded after what we believe was a short-term “boost” from central bank and rates policy commentary in general.
Interestingly, we have noted the increasing centrality and influence of language relating to the usual areas of increasing costs – Health Care, Education and Housing.
Fiat News surrounding inflation remains high, largely in connection to these clusters where opinion and de facto opinion journalism being called news seeks to influence readers.
A low attention narrative structure with very high fiat news and historically negative sentiment strikes us as one with higher than average asymmetry – especially in context of the strong common knowledge around central bank omnipotence.
We observed a curious combination for inflation narratives in August – a sharp drop in attention coupled with a sharp rise in cohesion
We believe that the drop in attention reflects an even further erosion in focus by investors on inflation.
We attribute this drop in large part to the rapid acceleration of attention to central bank policy narratives and continued peak levels of attention to trade and tariffs.
The increase in narrative cohesion reflects the increasingly universal discussion of inflation as being ‘non-existent’ or ‘a challenge’ to create.
Coupled with a rise in our fiat news measure, we believe that the equity market correction in August led to an increase in advocacy journalism – masquerading as news – arguing for stronger central bank action with ‘weak inflation’ as a justification.
We received a couple comments from readers that they found the different presentations for the charts and for the raw signal data for Sentiment and Attention confusing. Thanks! And we agree.It’s confusing.
We’ve accordingly updated July monitors below so that (1) sentiment charts show the same rolling 3-month values we provide in the data spreadsheet rather than our spot calculations and (2) the attention charts show fixed historical values as per the data file, rather than a dynamically updated series to reflect the changing long-term average. No changes to the raw XLS data.
If you would still like to see the faster/dynamic presentations of the signal data, let us know. Otherwise, our plan will be to keep it as simple as possible.
Access the Powerpoint slides of this month’s ET Pro monitors here.
Access the PDF version of the ET Pro monitor slides here.
We are seeing what we think is a divergence in economic and political narratives of inflation.
We observe the election and campaigning for the 2020 election rapidly expanding the use powerful inflation language to discuss health care and education costs. • • Meanwhile, we observe almost no coherent discussion about economic measures of inflation, or if anything, an emerging narrative being promoted that rates must be cut in order to spark such inflation.
There is, however, almost no cohesion across central banks on inflation language, and even very little among domestic missionaries. There is no meaningful short-run inflation narrative.
Because of the rise in political affect around specific issues, attention is rising. We would be mindful of portions of the market which may begin to behave as if there is an active inflation narrative on this basis.
Inflation attention rose somewhat in May, albeit in a less traditional way – price, wage and inflation language is making a return through 2020 election rhetoric.
The introduction of this language, mostly in relation to the health care, education cost and wage issues raised previously, has had some influence on financial media coverage, but remains very different from traditional inflation coverage. The result has been that cohesion of inflation narratives has fallen (i.e. there are multiple active weak narratives without any central influence).
The politically oriented inflation narratives are meaningfully more negative in tone than the usual macro / central bank coverage; the result has been a sharp drop from the already negative sentiment usually attached to this topic.
Our interpretation continues to be that there is not a meaningful short-term inflation narrative.
Inflation language remains at a low-to-moderate level, but outside of central bank policy discussions and discussions of health care and education (esp. student loans), attention – its influence on broader narratives – is limited.
Consistent with prior updates – and despite our belief in the long-term shift in Zeitgeist toward inflation – we do not think there is a coherent short-term inflation narrative at this time.
Inflation discussions persist with somewhat higher intensity than usual in the usual pockets in emerging markets. Latin America and Middle East have become more central to EM inflationary narratives.
We found it noteworthy in April that the language used in media to describe US inflation and central banking is most similar to language used to describe BOJ (relative to BOE/ECB/EM banks).
Despite the December pivot and move toward easing, inflation language continues to be present, with moderate internal consistency.
As in February, despite the increase in cohesion, and despite our belief in the long-term shift in Zeitgeist toward inflation, we don’t think there is a coherent short-term inflation narrative at this time.
Equity market stories also remain largely distant from specific inflation discussions.
We continue to see unusually persistent inflation stories in health care, and to a lesser extent, education and transportation. This month also saw a significant and cohesive introduction of Africa and Latam inflation stories.
We have seen some increase in Fiat News, which we believe is being driven by election period health care cost inflation discussions. This is the narrative catalyst we would be watching most closely.
Our attention measure for Inflation narratives rose somewhat in January, probably the result of responses to narrower price issues. Specifically, we observed significant missionary activity on prices for health care and pharmaceuticals, especially from the World Economic Forum.
We think the baseline level of inflation narratives is higher and will remain higher – a result of the changing Zeitgeist around the issue – but at present we don’t see a clear central narrative.
Narratives about consumer price inflation, wage inflation and producer prices all remain very mixed and inconsistent globally.
Fiat News measures continue to drift downward, reinforcing our view that there isn’t a strong central narrative at this time.
Elective price increases in technology, consumer and pharmaceuticals are near the center of these networks. While we typically think of increases in individual drugs and services like Netflix as idiosyncratic, we would be mindful of increased attention to these sources of inflation.
For yet another month, stock market declines refocused investor narratives – especially concerning monetary policy – on the pace of rate hikes and the ’Powell Put’, putting inflation very clearly on the back burner.
As a result, it appears that the inflation narrative has largely eroded. There is little connectivity between inflation stories and markets stories, and what connectivity exists appears to be the vestiges of a resurgent Central Bank Omnipotence narrative.
Fiat news measures have fallen as well, probably (this is our view, not a fact) because there isn’t an active narrative being promoted.
We do take note of an especially interesting cluster of stories (in red, middle right of the map). It is a highly connected cluster of stories that boil down to inequality stories, from student debt feature pieces to pharmacy benefits to stories about Oklahoma billionaires to French yellow vests. These are powerful memes that are worth keeping an eye on in context of future inflation narratives.
Attention to inflation narratives continued to wane in November as drumbeats for a slowing in the pace of Federal Reserve hikes became louder than discussion of continued wage inflation and price movements in emerging markets.
In our view, the core inflation narrative has effectively shifted to, “Input prices may be rising, but Fed won’t let asset prices fall like this.”
Of some interest, the largest single cluster – and a new one – is now a cluster focused on protests and shortages. These may not be familiar to all US readers, but are increasingly an issue in other regions.
This cluster and others seem to be telling stories of non-monetary causes for local inflation, especially issues like Brexit, tariffs, taxes and trade rules.
We observed no major changes in the usually negative sentiment around inflation, or in the fiat news / advocacy journalism language present in articles.
After several months of increasing cohesiveness around an inflation-is-coming narrative, attention to the topic has been tapering in early Q4
Right now we think this has more to do with the distraction created by declining equity markets, but this could change
Employment and unemployment discussions have been increasingly tied to inflation news in Q4, but otherwise the mix of topics has remained fairly consistent
Inflation-related topics are being linked much more strongly to financial markets (or at least in more volume) in the US than anywhere else in the world at this time
Sentiment is almost always negative for topics like inflation, but we think that the early 2018 “inflation and rate hikes are coming” narratives flipped most of the financial markets-focused media into more consistently negative language. See also Central Bank Omnipotence.