Learning
Macro glossary
122 macro and markets terms used in the briefings, explained in plain English.
- AI and the EconomyMarketsHow artificial intelligence is changing markets and the wider economy, from automated analysis and trading to its possible effect on productivity and growth.
- Asset AllocationEconomyHow an investor divides money across asset classes such as shares, bonds, cash and alternatives. It is usually the biggest single driver of how a portfolio behaves.
- Bank RateCentral banksThe Bank of England's main interest rate, set by its nine-member Monetary Policy Committee. It is the rate paid on commercial banks' reserves at the Bank and influences mortgages, savings and borrowing across the UK.
- Basis PointsEconomyOne hundredth of one percentage point (0.01%). Used to describe changes in interest rates and yields.
- Beige BookCentral banksQualitative summary of economic conditions from Fed regional banks, released 8 times per year.
- Bond VigilantesMarketsBond investors who sell government bonds, pushing up borrowing costs, in protest at policies they see as inflationary or fiscally irresponsible. The term was coined by economist Ed Yardeni in the 1980s.
- Breakeven InflationMarketsMarket-implied inflation expectations derived from Treasury and TIPS yields.
- Brent vs WTIMarketsThe two main oil price benchmarks. Brent, from the North Sea, is used to price most internationally traded oil. WTI (West Texas Intermediate) is the US benchmark, delivered at Cushing, Oklahoma.
- CPI (Consumer Price Index)EconomyA measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
- Calculating Real ReturnsHow it worksAdjusting nominal investment returns for inflation to find true purchasing power gain.
- Capital FlowsEconomyMovement of money for investment, trade, or business production across borders.
- Carry TradeMarketsStrategy of borrowing in low-rate currency to invest in higher-yielding assets.
- Central Bank IndependenceCentral banksThe principle that a central bank sets interest rates free from day-to-day political control, so it can take unpopular decisions, such as raising rates before an election, to keep inflation low.
- CommoditiesMarketsRaw materials like oil, gold, copper used in production.
- Consumer ConfidenceEconomyMeasure of how optimistic consumers are about the economy and their personal finances.
- ConvexityMarketsMeasure of how bond duration changes as yields change. Second-order rate risk.
- Core InflationEconomyInflation that excludes volatile food and energy prices to better capture underlying price trends.
- Corporate BondsMarketsDebt securities issued by companies to raise capital.
- Correlation BreakdownMarketsWhen assets that normally move independently, or in opposite directions, start moving together, usually in a crisis, reducing the protection diversification was meant to give.
- Credit Rating & DowngradesMarketsAn agency's assessment (Moody's, S&P, Fitch) of how likely a borrower is to repay, from AAA (safest) to D (in default). A downgrade can force some investors to sell.
- Credit SpreadsMarketsDifference in yield between corporate bonds and risk-free Treasuries of similar maturity.
- Crypto AssetsMarketsDigital currencies and tokens like Bitcoin and Ethereum.
- Current AccountEconomyBroadest measure of a country's transactions with the world, including trade, investment income, and transfers.
- Cutting CycleCentral banksA period during which a central bank lowers its policy rate to support growth or counter disinflation.
- Default RiskMarketsProbability that a bond issuer (company or sovereign) fails to pay principal or interest on time.
- Deficits and DebtEconomyThe gap between what a government spends and what it collects in taxes in a year. Each year's deficit adds to the national debt, the total amount the government owes.
- Discount WindowCentral banksFacility where banks can borrow directly from the Fed at the discount rate.
- Dollar Strength (DXY)MarketsUS Dollar Index measuring dollar against basket of major currencies.
- Dot PlotCentral banksA chart published quarterly by the FOMC that shows where each committee member expects the federal funds rate to be at the end of the current year and the next few years.
- DovishCentral banksA policy stance that prioritizes promoting economic growth and employment, usually through lower interest rates and looser monetary supply. 'Doves' are more tolerant of inflation.
- Dual MandateCentral banksThe Fed's Congressional mandate to promote maximum employment and stable prices.
- DurationMarketsMeasure of bond price sensitivity to interest rate changes. Expressed in years.
- ECB Deposit RateCentral banksThe interest rate banks earn on money they deposit overnight with the European Central Bank. It is the ECB's main policy rate and anchors short-term interest rates across the euro area.
- Earnings RevisionsMarketsChanges to analysts' earnings forecasts for a company or an index. Rising forecasts suggest the business outlook is improving; falling forecasts suggest it is weakening.
- Earnings SurprisesMarketsActual reported earnings per share vs. consensus Wall Street estimates. Beat = earnings > estimates; miss = earnings < estimates.
- Energy MarketsMarketsOil, natural gas, and refined products that are critical inputs to the economy.
- Eurozone BondsMarketsSovereign debt of Eurozone countries, with Germany (Bunds) as benchmark.
- FOMC MeetingCentral banksThe regularly scheduled meeting where the Federal Open Market Committee sets US monetary policy.
- FOMC MinutesCentral banksDetailed record of FOMC meeting discussions, released 3 weeks after each meeting.
- Fed Balance SheetCentral banksThe Federal Reserve's holdings of assets (Treasuries, MBS, etc.) and liabilities (bank reserves). Expands via QE, contracts via QT.
- Federal Funds RateEconomyThe overnight interest rate at which US banks lend reserves to each other. The Federal Reserve sets a target range for it, and it is the anchor for most other US interest rates.
- Fiscal DominanceCentral banksA situation in which a government's debts become so large that its central bank feels unable to raise interest rates as much as inflation requires, because doing so would make the debt unaffordable.
- Fiscal PolicyEconomyGovernment use of spending and taxation to influence the economy.
- Flight to QualityMarketsSudden investor shift from risky assets (high-yield bonds, equities, EM) to safe havens (Treasuries, gold, USD) during stress.
- Forward GuidanceCentral banksCentral bank communication about future policy intentions to influence market expectations.
- GDP (Gross Domestic Product)EconomyThe total monetary value of all finished goods and services produced within a country over a specific period.
- Geopolitical Risk PremiumMarketsThe extra amount built into an asset's price because of a political or military threat, such as fighting near oil fields or a threat to shipping, before any actual disruption has happened.
- GoldMarketsPrecious metal traditionally used as store of value and inflation hedge.
- GoldilocksEconomyEconomic environment with moderate growth and low inflation—not too hot, not too cold.
- Growth StocksMarketsCompanies expected to grow earnings faster than market average.
- HawkishCentral banksA policy stance that prioritizes controlling inflation, usually through higher interest rates and tighter monetary supply. 'Hawks' are willing to accept lower economic growth to keep prices stable.
- Hedging & Hedge RatioMarketsTaking a position that gains when an existing investment loses, to reduce risk. Common tools are options, futures and short sales.
- Hiking CycleCentral banksA period during which a central bank steadily raises its policy rate to combat inflation or cool the economy.
- How CPI is CalculatedHow it worksEach month the Bureau of Labor Statistics (BLS) collects around 80,000 prices from about 23,000 shops and service providers, plus rent data from tens of thousands of housing units, and combines them into the Consumer Price Index.
- IORB (Interest on Reserve Balances)Central banksThe interest rate the Federal Reserve pays banks on the reserves they hold at the Fed. In July 2021 it replaced the separate rates on required and excess reserves (IOER).
- ISM Manufacturing IndexEconomyMonthly survey of purchasing managers measuring manufacturing sector health.
- InflationEconomyThe rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
- Inflation ExpectationsEconomyWhat households, businesses and investors expect inflation to be in the future. They matter because expectations shape wage demands and price-setting, so they can make inflation self-fulfilling.
- Interpreting Employment ReportsHow it worksAnalyzing the monthly jobs report (NFP) beyond the headline number.
- Interpreting Fed SpeakHow it worksThe way Federal Reserve officials communicate, and the practice of reading their words closely for clues about future policy.
- JOLTS (Job Openings and Labor Turnover)EconomyMonthly survey measuring job openings, hires, and separations in the US labor market.
- Labor Force ParticipationEconomyPercentage of civilian population (16+) that is working or actively seeking work. Excludes retirees, students, disabled not seeking work.
- Leading Economic Index (LEI)EconomyComposite of 10 forward-looking indicators designed to predict future economic activity.
- Leverage & DeleveragingMarketsUsing borrowed money to increase the size of an investment, which magnifies both gains and losses. Deleveraging is the process of paying that debt down, often by selling assets.
- Liability-Driven InvestmentMarketsAn approach used by pension funds to match their assets to the pensions they must pay in future, often using borrowing and derivatives to increase their exposure to long-dated government bonds.
- LiquidityMarketsEase of buying/selling assets without moving prices; also refers to money supply.
- MBS (Mortgage-Backed Securities)MarketsBonds backed by pools of residential mortgage loans, issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae.
- Macro RegimesEconomyDistinct economic environments defined by growth and inflation dynamics.
- Margin & Margin CallMarketsMargin = using borrowed funds to buy securities. Margin call = broker demand for additional cash/collateral when account value falls.
- Market Cap / CapitalizationMarketsTotal market value of a company or index: stock price × shares outstanding. Measures size and relative weight in indices.
- Monetary PolicyEconomyCentral bank actions to manage money supply and interest rates.
- NAIRUEconomyNon-Accelerating Inflation Rate of Unemployment. The lowest unemployment rate that can be sustained without causing inflation to rise.
- NasdaqMarketsTechnology-heavy stock index tracking ~3,000 companies.
- Neutral RateCentral banksThe interest rate that neither speeds up nor slows down the economy when it is at full employment with stable inflation. Economists write the inflation-adjusted version as r* (r-star).
- Nominal vs RealEconomyNominal values are unadjusted for inflation; real values account for inflation to show true purchasing power.
- OIS (Overnight Index Swap)Central banksDerivative contract used to price market expectations of the fed funds rate.
- OPECMarketsThe Organization of the Petroleum Exporting Countries, a group of oil producers led by Saudi Arabia that coordinates output to influence prices. Since 2016 it has worked with other producers led by Russia as OPEC+.
- Okun's LawEconomyA rule of thumb linking growth and jobs: for each percentage point that GDP growth falls short of its trend rate, unemployment tends to rise by about half a percentage point.
- P/E Ratio (Price-to-Earnings)MarketsStock price divided by annual earnings per share. Low P/E = cheap relative to earnings; high P/E = expensive or high growth expected.
- PCE (Personal Consumption Expenditures)EconomyThe Fed's preferred inflation measure, tracking changes in prices of goods and services purchased by consumers.
- PMI (Purchasing Managers Index)EconomySurvey-based indicator of economic health in manufacturing and services sectors.
- Phillips CurveEconomyEconomic relationship showing an inverse correlation between inflation and unemployment; higher employment → higher wage/price pressure.
- Policy PivotCentral banksA fundamental change in the direction of a central bank's monetary policy, typically shifting from tightening (hiking) to easing (cutting), or vice versa.
- Potential GDP & Output GapEconomyThe level of GDP an economy can sustainably produce at full employment; output gap = actual GDP minus potential GDP.
- Private CreditMarketsNon-bank lending to companies, typically middle-market and unrated.
- ProductivityEconomyMeasure of output per hour worked, a key driver of long-term economic growth.
- QE (Quantitative Easing)Central banksCentral bank asset purchases (Treasuries, MBS) to inject liquidity and lower long-term yields when short rates are at zero.
- QT (Quantitative Tightening)Central banksCentral bank reduction of balance sheet by allowing securities to mature without reinvesting; opposite of QE.
- Rates (Interest Rates)EconomyThe cost of borrowing money, set by central banks (policy rates) and markets (market rates).
- Reading Economic CalendarsHow it worksScheduled release dates and times for key economic data and central bank events.
- Real YieldsEconomyThe return an investor receives on a bond after adjusting for inflation. It represents the true increase in purchasing power derived from an investment.
- RecessionEconomyA significant decline in economic activity lasting more than a few months, visible in GDP, income, employment, and production.
- Repo (Repurchase Agreement)MarketsShort-term funding agreement: borrower sells securities and agrees to buy them back at a slightly higher price (the repo rate).
- Reserve RequirementsCentral banksMinimum fraction of deposits banks must hold as reserves.
- Retail SalesEconomyMonthly measure of consumer spending at retail establishments.
- Risk-Free RateEconomyTheoretical interest rate with zero default risk. In practice, 10Y US Treasury yield used as proxy for risk-free rate.
- Risk-OffMarketsA market mood in which investors cut exposure to risky assets (shares, high-yield bonds, emerging markets, commodities) and move money into safe havens. Its opposite, risk-on, is when investors favour riskier assets in search of higher returns.
- S&P 500MarketsA market-cap weighted index of about 500 of the largest US listed companies, chosen by a committee.
- SEP (Summary of Economic Projections)Central banksQuarterly FOMC publication of economic forecasts including GDP, unemployment, and inflation.
- Safe-Haven AssetsMarketsAssets that hold or gain value during crises and market stress. Typically Treasuries, USD, gold, and select currencies.
- Sahm RuleEconomyA recession indicator created by economist Claudia Sahm: a recession has usually begun when the three-month average unemployment rate rises 0.5 percentage points or more above its lowest level of the previous 12 months.
- SanctionsEconomyEconomic penalties imposed by governments on other countries, companies or individuals, such as trade bans, asset freezes or exclusion from international payment systems.
- Sector RotationMarketsShift of investment flows between market sectors based on economic cycle.
- Soft LandingEconomyWhen a central bank raises interest rates enough to bring inflation down without causing a recession. The opposite, a hard landing, is when tightening tips the economy into recession.
- StagflationEconomyAn economic cycle characterized by slow economic growth and relatively high unemployment—economic stagnation—accompanied by rising prices (inflation). It presents a dilemma for economic policy, since actions designed to lower inflation may exacerbate unemployment.
- TIPs (Treasury Inflation-Protected Securities)MarketsBonds whose principal adjusts with CPI to protect against inflation.
- Tail RiskMarketsProbability of extreme moves (crashes, gap moves) beyond what normal distribution predicts. Fatter tails = higher tail risk.
- TaperCentral banksGradual reduction in the pace of central bank asset purchases.
- TariffEconomyA tax on imported goods, paid by the importer. Tariffs raise prices for buyers, shield domestic producers from competition and often trigger retaliation.
- Term PremiumMarketsExtra yield investors demand to hold longer-maturity bonds vs short-term bonds; compensates for interest-rate and inflation risk.
- Terminal RateCentral banksThe peak policy rate expected in a hiking cycle before cuts begin.
- Trade BalanceEconomyDifference between a country's exports and imports of goods and services.
- TreasuriesMarketsUS government bonds backed by the full faith and credit of the US government. The safest fixed-income assets.
- UK GiltsMarketsUK government bonds, equivalent to US Treasuries.
- UnemploymentEconomyThe share of the labor force that is jobless and actively seeking employment.
- VIX (Volatility Index)MarketsAn index from Cboe that measures the volatility markets expect in the S&P 500 over the next 30 days, calculated from options prices.
- Value StocksMarketsShares that trade at low prices relative to their earnings, assets or dividends, often in mature industries.
- Vol SpikeMarketsA sudden, sharp increase in market volatility, typically measured by indices like the VIX. It indicates a rapid expansion in the expected range of price movement.
- Volatility ClusteringMarketsTendency for high volatility periods to persist and low volatility to persist.
- Volatility Smile / SkewMarketsPattern in implied volatility of options: volatility is higher for deeply out-of-the-money (OTM) strikes than at-the-money (ATM).
- WagesEconomyCompensation paid to workers, tracked via Average Hourly Earnings and Employment Cost Index.
- Yield CurveEconomyA line that plots the interest rates (yields) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.