Tapering Dramas, Delta and Data
Measuring public policy volatility enables portfolio managers to take strategic pre-trade decisions, as our blogposts over the years have shown. The volatility risk measurements take on particularly important signaling value in advance of major events.
Consider this week’s Jackson Hole conference of world’s most influential central bankers. The sessions traditionally has provided a platform for reserve currency central bankers, selected academics, and prominent economists to provide perspective on policy trajectories for the next six months.
But not this year. Growing anxiety regarding the Delta variant has been cited as the reason for non-U.S. central bankers to cancel their participation and for the Kansas City Federal Reserve to scale back the sessions to a one-day virtual format.
Global macro strategists measuring pandemic-related policy volatility using PolicyScope data will not be surprised by the policy implications. Policy activity regarding COVID-19 has remained both elevated and relatively volatile throughout the month of August:
Importantly, the aggregate level of policy activity is only marginally lower than measured levels last year, before widespread vaccinations were available:
Elevated and sustained activity during August 2021, paired with growing anxiety regarding the Delta variant, suggests strongly that policymakers in the United States are positioning to delay the exit of accommodative monetary policy priorities despite the booming U.S.
economy. But PolicyScope data also provides portfolio managers and risk analysts with the ability to extend their nowcasting capabilities well beyond this week's Delta Variant dramas.
For example: the Delta variant managed NOT to generate the majority of policy activity in the last 24 hours globally. Data releases from the OECD and activity from USTR managed to outpace the pandemic as a source of policy volatility overnight. Moreover, the distribution of public policy activity globally was broad-based, including such disparate issues as digital currency, infrastructure, and banking.
Or consider yesterday's global policy activity. Policymakers from Malaysia to Finland, from the UK to the European Parliament, to the US Trade Representative released a flurry of pandemic-related activity designed to maintain rather than taper economic support mechanisms related to the pandemic.
Our conclusion: PolicyScope data suggests strongly that officials around the world (not just the Federal Reserve) remain committed to contributing support structures for their respective economies as uncertainties multiply regarding the Delta variant.
But unlike 2020, the scale and scope of activities make clear that this time policymaking in other arenas will continue to gather steam as the last quarter of 2021 approaches. This is particularly true with respect to monetary policy. Central bankers globally are increasingly expanding their field of vision to incorporate climate-related risks in their formal monetary policy programs. For example:
climate-related risks now form a core component of the new monetary policy framework announced by the European Central Bank in July
the Bank of Japan has also announced a new component of its monetary policy designed to accelerate the capacity of financial institutions to explicitly price for climate risks using a "new fund-provisioning measure...(which) is a new attempt to support efforts on climate change through the conduct of monetary policy."
the Banque de France in July announced it had successfully tested a central bank digital currency using a private distributed ledger.
It is very true that any statement regarding asset purchases and interest rate policy from the central bank for the world's predominant reserve currency on Friday will generate short-term market impacts while affecting medium-term expectations. But the topic of conversation and the focus of policy priorities globally is shifting away from the pandemic, as noted by PolicyScope data.
Strategic portfolio managers with access to PolicyScope data in .csv format or through the Bloomberg Enterprise Access Point can further amplify their pre-trade analytics and nowcasting capabilities by drawing direct connections between these developments and their portfolio exposures because earlier this year BCMstrategy, Inc. mapped all our lexicon terms to over 300 economic sectors. Strategists and risk analysts will of course keep an eye on the delta-related tapering dramas this week, but their pre-trade analysis and nowcasting activities increasingly will shift to assess the more significant policy shifts on the horizon as central banks start positioning for a post-COVID-19 future through climate-related risk and digital currency policies. The patented PolicyScope process has been tracking these issues for years, so users will be well prepared for the direction and content of those shifts when they materialize.
BCMstrategy, Inc. is bringing the data revolution to the policy intelligence business by quantifying public policy risks word by word, sector by sector, globally, and daily using patented technology. The data is available to portfolio managers and global macro strategists both in .csv format and through the Bloomberg Enterprise Access Point. Learn more and request a free demo HERE.