Global macro is an investment strategy that leverages macroeconomic and geopolitical data to analyze and predict moves in financial markets.[3][4] Large-scale or "macro" political and economic events can disproportionately impact certain sectors, such as the energy, commodity, and currency markets, over others. The strategy typically employs forecasts and analysis of interest rate trends, international trade and payments, political changes, government policies, international relations, and other broad systemic factors.
History
As a strategy, global macro formalized in the late-1960s around commodity trading.[4] Large-scale macro events pushed market prices of both soft (cocoa, fruit and sugar) and hard (gold, silver, and copper) commodities to move in recognizable patterns.[5] In the 1970s, interest rate modeling was used to predict moves in foreign currency markets as well as in sovereign debt.[4] Hedge fund managers such as Paul Tudor Jones used large-scale demographic analysis to predict the equity market collapse of 1987 after comparing the market conditions of a similar crash in 1929.[4] The 1990s saw the rise of global macro volatility trading which used geopolitical instability in both developed and developing nations to place directional bets on market movements.[4] In 1992, hedge fund manager George Soros' profitable sale of the pound sterling prior to the European Exchange Rate Mechanismdebacle yielding him a profit of $1 billion in a single day.[6][7]: 225 In 1994, investment management firms began factoring in macro data into a portfolios' risk profile.[5] Three years later in 1997, the Global Economic Policy Uncertainty (GEPU) Index was created to measure three key macro variables: economy, policy, and uncertainty (volatility).[5] During the 2010s, quantitative investment funds dedicated resources to global macro strategies due to the complexity involved with analyzing large amounts of dynamic economic and political data.[4] Modern technology including AI has been used to sort through data and in the execution of trades involving certain sectors, such as the energy, commodity, and currency markets, among others.
Types
Due to the broad mandate of global macro, it has been described by DoubleLine Capital as a "go anywhere, do anything" strategy.[8][9]
Discretionary: deploys directional positions at the asset class level to express a positive or negative top-down view on a market. Of all of the strategies, discretionary macro provides the most flexibility, including the ability to express either long or short views, across any asset class, and in any region.
Commodity/Managed Futures: applies priced-based trend-following algorithms to the trading of futures contracts on similar data used by discretionary macro.
Systematic: enters into positions with data based upon fundamental analysis, similar to discretionary macro, but the deployment of those trades is based on a systematic, or model-driven process.
