Incorporating Global Macro Into Analysis: Risk Appetite, Systemic Themes and Event Risk

Incorporating Global Macro Into Analysis: Risk Appetite, Systemic Themes and Event Risk

There is a split in preference for ‘top-down’ and ‘bottom-up’ analysis amongst investors. However, ‘global macro’ lay lead market participants most of the way through their analysis.

Talking Points:

• Global macro analysis aims to evaluate systemic-level fundamental analysis that may encompass the majority of the picture for most market
• Risk appetite is a systemic cycle that all market participants should keep tabs on while prevailing thematic influences is a regular point of monitoring
• Event risk – scheduled and unscheduled – tends to be the focus, but market-influence depends on the higher order settings for the backdrop financial system

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Top Down and Bottom Up Analysis

For anyone and everyone that engages the markets to invest, hedge or speculate; there are general methods of analysis. Outside of acting with no consider of time and price, there is an assessment that is done of target markets that is either ‘top down’ or ‘bottom up’. This represents analytical approaches in which an observer/participant is evaluating their market of interest from the broadest possible perspective down to the particulars of the asset that they are engaging or inversely a focus first on the particulars with an escalation to the widest representation of the financial system.

When it comes to ‘global macro’ analysis and trading, there is generally a lower threshold to the particulars of any market/asset that one is evaluating. That doesn’t mean that the deeper analysis isn’t warranted, but it is more idiosyncratic and asset-specific consideration. There is an information advantage when it comes to the global macro leg of analysis. Data tends to be of a higher order that is more accessible and often more influential. Consider the example of an individual stock like Tesla whereby its role as a Mag 7 member makes it sensitive to the broader consideration of ‘risk on / risk off’ and a contributor to the popular theme of ‘AI’. Beyond those high-level influences, the assessment moves into consumer demand, electric vehicle incentives, robot assistant forecasts and more. That is a fluid component of value and highly volatile relative to the global macro elements.

Chart of Tesla Stock with Earnings and Daily Gaps (Daily)

Source: TradingView

Risk Appetite Sits at the Bottom of the Global Macro Pyramid

While a very rough estimate, it is reasonable to suggest that the majority of the average market’s general trend draws heavily upon the systemic consideration around the standing of risk appetite in the broader financial system. Risk appetite goes by a number of names including ‘risk on / risk off’ or ‘fear and greed’. It is a broader sentiment across the markets that urges capital to either prioritize higher returns (either via capital gains or yields) or safety of funds. That drive tends to span time, asset class, region and other typical divisors. 

Evaluating the standing and intensity of risk appetite is a process in itself. A consideration of correlation across major asset benchmarks that are otherwise very loosely related – but for general sentiment – can offer a fairly good assessment of this critical measure. The more highly correlated benchmarks like top global equity indices, emerging market measures, junk bonds and other measures along with the intensity of their related move, the more likely it reflects a motivated at the level of sentiment. That said, if the correlation is low or the progress of strongly connected markets is tepid, the risk move is offering limited guidance..

Scale of Risk Appetite/Aversion and Level of Intensity

Source: John Kicklighter

Gauging What Systemic Theme Is Currently Engaged

A step down from the all-encompassing influence of risk appetite on the global macro scale is the evaluation of systemically influential themes. There are a range of high-level fundamental influences that can cut across markets because of the implications of their scope. Among the more recent currents taking control of markets, we have seen tariffs (negative), interest rate speculation (bullish), economic potential (negative), the US government shutdown (negative) and artificial intelligence (bullish) trade influence at the helm over the past months. 

The control of these themes – and new or different historical drivers – at any given time changes depending on the circumstances. Determining what the prevailing wind is at any given time is the objective of analysis on this dimension. Gauging the relationship between different markets and the reaction to key event risk (whether scheduled data or unscheduled statements) can help hone down on this target. In the absence of a definable and reliable theme on this level, either risk appetite will need to demonstrate a strong momentum at a higher level or a lower level event-led activity will come with a limited price response.

Google Trends Global News Search Ranking on Key Macro Terms

Source: Google Trend

An Example of the Systemic Roles for Gold

An example of the changing systemic roles for a market, gold offers a good reflection of how prevailing driver can shift with time. Towards the beginning of the year, the precious metal was taking up its role as an inflation hedge with the introduction of reciprocal tariffs charging the cost of necessary goods. There was a related swoon in ‘risk assets’ like the major equity indices that would in turn stoke a different appeal for gold as its historical ‘safe haven’. Yet, as risk appetite recovered as authorities backed off on those taxes, a drop in the US dollar arising from the anti-US shift would in turn trigger the ‘anti-fiat’ appeal of the alternative asset. This is a unique situation in which roles shifted and chained to fuel an impressive bullish trend through the first three quarters of 2025, but it is also a clear demonstration of this systemic layer of global macro.

Chart of Gold Overlaid with Inverted S&P 500, Inverted DXY Dollar, TIP ETF (Daily)

Source: TradingView

High Level Event Risk as the Sparks to Ignite Fundamental Fires

At the edge of global macro analysis is the high importance event risk that can change the course of a higher order systemic theme or even risk trends itself. Rather than monitoring all top tier event risk for extreme outcomes, it is economical to first evaluate the general bearings of sentiment and identify the prevailing theme to gauge what scheduled release has the potential of moving the market with a meaningful surprise.

For example, if the focus is interest rate speculation (either from a perspective of relative yield or stimulus hopes), then a data release like the US CPI or nonfarm payrolls – key components of the Fed’s dual mandate – will exact more impact on the Dollar or S&P 500 with a tangible surprise. If, on the other hand, the course of interest rates is clearly plotted by commentary and market forecasting via relevant assets (eg Fed Funds futures), then the same updates will have a comparatively small impact on price. Evaluating economic calendars for top events with a reference to engaged top line themes can guide us to more predictable bouts of volatility – whether that is a mere flash in the pan or the catalyst to a bigger trend.

Calendar of High Important Global Macro Events (Oct 20 – Oct 25)

Source: TradingView

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--- Experts: John Kicklighter, Global Head of Content, Matt Weller, Global Head of Market Research