This article was written by Brad Alexander, VP of sales at Acuity Trading.
We have a widget.
It’s a colourful little thing and, if you had to describe it, you might say it looks like a speedometer from a vintage race car. The main difference though, is that instead of going from zero to one hundred, it goes from minus one, to zero, then to plus one. Its job is not to measure the speed of a race car, but to gauge the news sentiment shift on a wide variety of currency pairs, commodities, indices and equities.
This little guy has been busy lately; mostly with cable, sterling crosses and the FTSE with news volatility on Brexit ramping up to the referendum just a few days away.
For example, just the other week most of us witnessed a very bad report on the US Non-Farm Payrolls which was very kind to GBP/USD. This, of course, was Friday afternoon in London and, just a few hours later on Saturday morning, a surprise Brexit poll was released with the Leave campaign shooting ahead. This, as expected, was unkind to GBP/USD and the price went back to where it was, erasing the gains made by the bad US news.
Our little widget wasn’t fooled however. With a sudden spike in positive news out of Washington, followed by a volley of negative news from London, basically cancelling each other out, our Mr Widget’s needle was firmly planted on ‘zero’ for a time.
This didn’t last long as the markets got going last Monday as a barrage of Brexit (as opposed to Bremain) polls came out, sending news sentiment on cable well to the bearish side. Just to clarify: this widget looks at the last 30 days of news sentiment and compares it to the last hour, so normally, the effects are quite gradual and subtle. Hour by hour, it chugs away, giving intraday and swing traders just enough information on market sentiment to make or confirm decisions.
During the last few weeks, however, this little widget, and its first cousin looking after EUR/GBP, have been moving around so much they could easily have been mistaken for the windscreen wiper, instead of the vintage speedometer of our metaphorical vehicle.
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So, what is all this about anyway — this news sentiment and big data analytics? You may not have heard too much about it but it has been working away in the background of our lives for 10 to 15 years, trawling through billions of internet articles, blogs, social media postings, etc., mining data on…well…everything!
The benefits for businesses are endless. Instead of heading out to the streets with an army of teenagers with clipboards and pencils, Ben and Jerry’s now can mine data to help determine which will be the next flavour of ice cream; Caesar’s Palace can quickly scour the internet to determine which game pissed people off more…the slots or blackjack; Pfizer can plow through tens of thousands of bits of data in seconds to see if those little blue pills you are taking are causing any side effects. I could go on…
Therefore, unless you have been living in a cave since the Y2K crisis, somehow, some way, your life, the things around you and the products and services you use, have been influenced by big data mining.
The most obvious examples are now right in front of us, including Hewlett Packard and IBM spending huge amounts on television advertising to tell us about…the doctor who can read thousands of articles about colon cancer before breakfast; how Bob Dylan’s favourite song-writing themes can be picked out in nano-seconds; Serena Williams’ stats being analysed to the point where she utters “You sound like a coach.” Truly, we are in a brave new world.
The big data that concerns our businesses, of course, is financial information. A big factor in this is volatility and the ability to filter out non-financial information from information that will affect our trades and businesses. For example, we can easily see that news volume has reached unprecedented levels regarding the FTSE and we can expect no less this week regarding anything that has to do with sterling and the UK in general.
We all have our different jobs to do during this week. We, ourselves, will be keeping an eye on news analytics during the next few days to see how sentiment will be affected before and after the event. If you are a broker or a liquidity provider you have your work cut out for you and you probably don’t have time to spare to be reading blogs. If you are a trader, I have three bits of advice for you; watch the spreads, watch the spreads and, of course, watch the spreads!
In closing: I was recently researching past referenda and other occurrences such as Y2K and I found, not surprisingly, that there were huge spikes in news volume during the last week before the events in question.
However, with all this amazing data available, it really surprises me that neither the Brexit people nor the Bremain people have taken real advantage of big data analytics. Having said that, it wouldn’t surprise me in the least if the Bremain camp had found this data and kept quiet about it! The truth is, there are those mining hundreds of thousands of pieces of news looking at 8 or 9 categories that will affect the decision like jobs, immigration, security, etc. Although two or three of these categories have wavered between leave and stay during the last few weeks, the overall sentiment has been heavily on the Leave side. Brexit. Have they missed a trick? Of course they have!