InformationdelugeandNateSilver

First things first, the Indian government announced a plan to allow all residents over 18 years of age to get covid vaccines from May 1^st. As 18^th April saw the highest ever addition of new covid cases (273k) the universal vaccine is a way to achieve the coveted goal of getting herd immunity to society. However, the vaccine production in adequate quantities still remains an issue. Other countries like the US, China however continue their reopening and are expected to be back to full steam in the coming days. In the case of China with its first quarter GDP growth showing a 18.3% jump, the engine already appears to be running at full throttle. As per the news reports, Mainland China is reporting only 15-20 new cases per day currently.

The second set of news is from the central bank corner. The ECB rate decision is due Thursday where apart from the rate, the commentary regarding the bond buying program i.e. PEPP will be keenly watched. On Friday the Russian Central Bank will also meet to formulate its policy and is expected to raise the benchmark rates by 25 bps to 4.75%. The minutes of the Reserve Bank of Australia’s meeting for April were also released where they committed to maintain highly supportive monetary conditions until the employment and inflation goals are achieved. The policy rate is currently at 0.1%.

In terms of currency and interest rates movement. The US Dollar retreated against both the Euro and GBP. In Euro the important level of 1.20 was broken after 40 days. The Pound is now trading at 1.40. The US 10-year yields jumped 5 bps yesterday to trade now at 1.60. Brent crude and gold both inched up to trade 67.60$/bbl and 1770$/oz respectively. The Indian Rupee though saw a 50 paise dip in yesterday’s trade which marked a significant fall in the equity markets too. The Indian yields though remained steady.

Readers would identify that in the above lines we have covered some 14 different pieces of information from covid to CB to currency to crude. There is just a small subset of thousands of information bits which are getting generated every minute and having the potential to move the markets. These bits can come from anywhere, sometimes directly from the headquarters of Fed, sometimes from the lab working on a vaccine or sometimes from the office of authority monitoring the Suez Canal or from UEFA for that matter. The task for the market participants is to derive the actionable insight from the news and prepare a strategy accordingly. Add to this the complexity that not all the market participants are working with the same time frame in mind. Some are buying to hold for a decade whereas some algorithms will be out of the position in a nanosecond. Hence the definition of market moving information itself is elusive, news may be relevant in one time frame but useless in another.

Nate Silver in his 2012 book The Signal and the Noise writes extensively about the information deluge, the noise issue and the importance of sieving the relevant bits out of the heap. He gives his readers a sense of history by quoting how precious information was in medieval Europe. Prior to Guttenberg’s printing press, the going rate of reproducing a single manuscript was one florin (a gold coin worth 200 USD in today’s Dollars) per five pages. Readers can see the cost of getting information (knowledge) was acutely high. Silver writes that though printing press changed things the real revolution happened post the advent of the world wide web. Now we live in a completely different world of excessive information. Hence the new world requires a novel faculty to navigate i.e. cut the clutter and know what is relevant. Silver focuses on a technique called Bayesian updation in his book to make decisions. We will take that up in a later note and discuss with readers at how we can utilize that in the context of markets.