Powerful new macro predictors turbocharge alpha generation

The use of global macroeconomic forecasts to guide position taking in the fixed income, foreign exchange and equity markets has been one of the hardest challenges for investors and is evolving rapidly thanks to new artificial intelligence prediction models. These models need to be supported by both robust data management processes and a suitable training process. LSEG’s Global Macro Forecasts enable a more sophisticated and accurate approach to macro predictions – supporting the opportunity for additional alpha.

• Financial firms are pouring enormous resources into the data management and artificial intelligence (AI) that underpins the creation of more accurate macroeconomic forecasts.
• Investors have long sought to develop forecasts to enhance asset allocation decisions, as their impact is greater than security selection. However, this has been challenging due to the complexities involved in forecasting with less data over longer periods.
• New data management technology, enriched by datasets such as LSEG’s Machine Readable News and Point-in-time Economics, alongside deep domain expertise and high-powered AI models, make it possible to uncover complex relationships that are brought together to generate cutting-edge economic indicators.
• LSEG’s Global Macro Forecasts offers indicators that incorporate these point-in-time data sources, enabling traders and asset managers to improve decision-making and generate additional alpha by staying ahead of the markets.

Analytics for trading and investing are the focus of unprecedented investment in data and technology within the financial services industry. More data – and better data management – is needed to feed increasingly sophisticated models. Creating reliable macroeconomic forecasts for sector and asset allocation has long been the holy grail for investors, due to its significant impact on portfolio performance. Before the advent of Machine Learning, the task seemed unattainable due to the extreme complexity of global markets, and the vast amount of data involved.

LSEG’s Global Macro Forecasts, powered by Exponential Technology, create new alpha opportunities for investment firms that previously lacked the expertise and resources to leverage macro information, by delivering more accurate macroeconomic forecasts and enabling highly informed trading and portfolio-level decisions for foreign exchange, fixed income and equity markets.

With clean and realistic training data, using techniques such as teacher forcing during the training process enables any mistakes in AI inference to be corrected. The prediction accuracy is enhanced by ensuring that the AI is training on the best possible information at each step in the time series.  Without teacher forcing, the AI might train on incorrect data, stray from the correct values, with the risk that errors are compounded over time. Indeed, one of the benefits of AI is its ability to crunch sizeable datasets in more complex ways. However, the AI must first be trained, and excellence in training AI models requires excellence in data point-in-timeliness and curation.

Many larger buy- and sell-side firms are investing in significant data management and AI prediction resources. Firms often use human resources to acquire, clean, normalise and manage datasets. But this rapidly becomes expensive and challenging to scale and potentially lacks true scale and sophistication.

LSEG’s expandable, centralised data warehouse and automation scaffolding enables state-of-the-art point-in-time AI inference and automation. Once data processes are automated, firms can leverage this new capability as a force multiplier on performance. And when these approaches to data management and AI are applied in concert, the result is a much more accurate and actionable indicator for traders and asset managers. It also brings together novel approaches by correlating datasets that wouldn’t normally be considered side-by-side, uncovering hidden relationships.

LSEG’s Global Macro Forecasts, powered by Exponential Technology, is a new service that incorporates these industry-leading technologies and AI inference. Indicators show the impact that key data points have had, are having, or could potentially have on financial markets. These actionable indicators can enable traders and asset managers to make more informed strategic choices. The forecasts are delivered via an API.

Firms can use LSEG’s Global Macro Forecasts to trade in advance of CPI announcements by the US government or alternatively apply them to their proprietary internal models built with additional data sources, to help generate additional alpha. The predictive CPI forecast, for example, spans timeframes ranging from four weeks prior, up to the official release of the monthly CPI data by the US Government’s Bureau of Labor Statistics.

On March 17, ahead of the official CPI release on April 10, Exponential Technology successfully predicted a -0.1% MoM decline in the March CPI.

On March 15, ahead of the official release on March 25, Exponential Technology forecasted a value of 92.94 for March 2025. The actual index came in at 92.9, below the consensus median of 94.