Increased flow of unfavorable information surfaces
The Financial Times (FT) has been a beacon of financial news for decades, but a closer look reveals a more sombre picture. Over the past 40 years, the FT's content has shown a generally negative sentiment, a trend that became more pronounced post the 2007-08 global financial crisis.
This shift in sentiment is not a reflection of the FT's bias towards negative news, but rather an indication of how bad the news is in relative terms. The average sentiment since the crisis has been far below the pre-crisis period (1982-2006).
The construction of the FT's Macro Mood involves sophisticated methods for extracting data from text, such as embeddings and fine-tuned large language models. These methods help to assign a general sentiment score to each article, ranging from -1 to 1, with a second model categorizing how close each article is to the Platonic ideal of economics articles.
The FT's Macro Mood shows a strong correlation with Wall Street's Vix index, a measure of market volatility. In fact, the FT sentiment can explain nearly 20% of the daily Vix close price. This correlation suggests that the mood of the FT's coverage reflects the market's anxiety levels.
The sentiment recovery in the second half of 2017 was a brief blip, with 2018 and 2019 seeing a decline due to the start of Trump trade wars and the anointment of Boris Johnson as UK prime minister. The ongoing poor mood since the financial crisis might be attributed to worsening news, such as Covid, inflation, and rising populism.
Interestingly, negative headlines tend to receive more clicks, a phenomenon that might contribute to the perpetuation of this negative sentiment. However, it's important to remember that journalists have a role in uncovering scandals and holding the powerful accountable.
A model using FT sentiment can predict US CPI inflation over the next 12 months better than the Fed's own staff forecast and a standard benchmark model. Furthermore, a model that includes a breakdown of topics covered in the FT improves the prediction of US CPI inflation further.
It's worth noting that the FT's Macro Mood does not predict inflation over the next year accurately in an absolute sense. Instead, it provides a relative measure of the news's pessimistic tone.
The FT's Macro Mood is updated daily on the FT's Monetary Policy Radar data page, and its construction was based on the FT's Monetary Policy Radar. The involvement of specific journalists in the development of the Macro Mood is not publicly available, although the FT has been associated with notable investigative reporting, such as the work of journalist Dan McCrum.
The FT's souring mood might be linked to a wider negative turn in newspaper media since around 1970, possibly driven by increased media competition, as previously reported by Alphaville. Despite this, the FT remains a crucial source of financial news, providing insights into the market's mood and offering predictions about future economic trends.
