Central Bank Omnipotence Monitor – 10.31.2018

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  • The narrative of coordinated global central banking policy has been restrained for an extended period, including most of 2018.
  • After a brief rise along with inflation fears earlier in 2018, we think stories and research have settled into clusters around three active central bank narratives with modest internal cohesion: (1) “US equity and bonds markets expect a gradual pace of rate hikes”, (2) “BOJ and PBOC are concerned about trade but markets expect a light hand of intervention” and (3) “Italy, bad debts and disappointing growth are going to drive policy for the ECB.”
  • Notably, we do not observe a dominating narrative in media that “The Fed Will Save Us” or “The Fed Must Save Us” in the same way that we observed after equity drawdowns in recent years. 
  • After entering the year with a certain indifference to central bank coverage, however, reports became increasingly dour over the course of the year. We think this is primarily a reflection of the generally greater concern by this universe for equity and bond market performance over inflation concerns.
  • We also note that “rates will help savings and attract young people back to traditional banking” stories were surprisingly central and connected to highly varied topics / clusters. This is new and worth monitoring as part of an inevitable financials rotation story from sell-side sources.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Fiat News Index

Source: Quid, Epsilon Theory

Sentiment Index

Source: Quid, Epsilon Theory

Key Articles

Speculative Edge of Stock Market is Where Rate Angst Could Bite

Global Markets – Shares bound as bulls fight back at end of brutal October

Stock market bears have their best chance in nearly four months to cut into the bulls’ 2018 lead

Student debt can ruin your dreams of being your own boss

ECB’s Coeure Still Sees Need for Stimulus, Seeks Fiscal Reforms

Italy faceoff is not expected to derail the European Central Bank’s message to markets

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Trade and Tariffs Monitor – 10.31.2018

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  • While it is only a single data point, our October attention measure rose from its very low base over the prior three months. Our aggregate rolling measure of that attention remains low.
  • Similarly, sentiment and language in articles about Trade and Tariffs have continued to be very negative in comparison to more benign and technocratic coverage of the issue in late 2017 and early 2018.
  • The sub-themes that are being most attached to markets, positioning and stocks are also the ones that have emerged with the strongest connectivity to all other themes: National Security. We think this is important. By attaching trade and tariff issues with China to territorial disputes, IP and cybersecurity, narratives here could take on a lot more influence in the minds of allocators and investors.
  • While our measures of fiat language and advocacy journalism rose in the February/March concern about tariffs, we have not yet observed that in the most recent uptick. 

Narrative Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Fiat News Index

Source: Quid, Epsilon Theory

Sentiment Index

Source: Quid, Epsilon Theory

Key Articles

Asia shares bounce after rout, but sentiment fragile

Harley-Davidson posts largest profit beat in two years, Europe sales rise

Stand together, Britain’s May calls for unity on Brexit

Wall St. cuts losses as investors snap up shares

Powell: U.S. outlook “remarkably positive” with low unemployment, tame inflation

Trade retaliations against the U.S. hit Canada farmers, too

America’s global trade war finally arrives at the WTO as members dispute US tariffs

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US Fiscal Policy Monitor – 10.31.2018

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  • After climbing as usual (and, we think, in more muted fashion) in connection with mid-term elections, attention to US Fiscal Policy narratives ticked down modestly in October.
  • We are not observing higher than usual fiat news or advocacy journalism effects, although we note that the aggregate level of fiat news for fiscal policy topics is very often much – between double and triple – that of similar topics we track. 
  • The tone and sentiment of topics has continued to plummet in the lead-up to elections, which we anecdotally attribute to coverage of political rhetoric, attack advertisements and the like. We expect this to recover following elections, but would be focused on potential import if sentiment remained as negative as it is today. 
  • While attention is high for the elections – stories are reporting many of the same themes – if anything, the narratives around US Fiscal Policy appear to be anti-austerity rather than anti-deficit. The most central topics are not market debt fears or spending levels, but rather inequality and funding of education, health care and disaster services at the federal level. 

Narrative Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Fiat News Index

Source: Quid, Epsilon Theory

Sentiment Index

Source: Quid, Epsilon Theory

Key Articles

Lower For Longer Is No Longer Certain

The Credit Cycle is On the Turn

The Credit Crunch Cometh

Are Republicans seeking to get rid of Medicare, Medicaid and Social Security?

No, Trump’s Tax Cut Isn’t Paying for Itself (as Least Not Yet); News Analysis

The U.S. Economy is Booming. So Why Is The Federal Deficit as its Highest Level Since 2012?

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Credit Cycle Monitor – 10.31.2018

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  • While articles including key credit terms continued to rise in October, their internal coherence continued to fall. This means that stories tended to cover individual countries, regulators, companies or debt markets without explicitly or implicitly identifying connections between them. 
  • Even within similar topics, articles varied between reviews of compressing spreads and strong lending markets and a new group of articles exploring potential risks for these funds going forward, especially in CLOs and leveraged loan topics. 
  • While it is a narrow data point, we have seen a small up-tick in fiat news and advocacy journalism in a topic that is already fairly well-populated by such pieces. 

Narrative Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Fiat News Index

Source: Quid, Epsilon Theory

Sentiment Index

Source: Quid, Epsilon Theory

Key Articles

More house prices falls look likely unless regulators intervene

IL&FS fallout: Finance firms face fund crunch

Italian banks caught in vicious circle as bond spreads hit danger threshold

There is a new IMF in town and it’s called China

Ameritech Financial: Could Almost Half of Student Loan Borrowers Be in Default by 2023?

Asset Gatherer versus Asset Manager: What Happens When a Core Bond Strategy Gets Too Big?

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