InvestMacro

Gold rises as Treasury yields fall on weakening US inflation

The US stock indices mostly rose yesterday. At the close of trading, Dow Jones (US30) was up by 1.14%, and S&P 500 (US500) increased by 1.33%. NASDAQ Technology Index (US100) jumped by 1.99%.

The US jobless claims rose to 239,000. This is the first increase in 3 weeks. Jobless claims in February fell to their lowest level since 2021, and labor force participation rose in March to its highest level in three years. This data indicates that the labor market is starting to weaken. The Producer Price Index, which shows the inflation rate between factories and factories, fell by 0.5% in the last month, indicating lower inflationary pressures in the US. Analysts believe the Federal Reserve may take a less aggressive stance on the monetary policy along with falling overall inflation. Minutes from the Fed’s March meeting showed that the Central Bank expects recent bank turmoil to trigger a “soft recession” later this year.

Today is the start of the US reporting season. JPMorgan Chase & Co (JPM), Citigroup Inc (C), and Wells Fargo & Company (WFC) will release quarterly results before trading opens.

Equity markets in Europe mostly rallied yesterday. By the end of the day, German DAX (DE30) gained 0.16%, French CAC 40 (FR40) added 1.13%, Spanish IBEX 35 (ES35) increased by 0.30%, British FTSE 100 (UK100) closed positively by 0.24%.

Inflationary pressures in Germany are starting to ease. The latest data showed that consumer prices declined from 8.7% to 7.4% year-on-year. Today the inflation data will be released by France and Spain. And if there is also a decline there, the ECB may well lower the rate hike to 0.25%.

Oil prices lost some of their upward momentum after OPEC warned that a recession could hurt the oil market. In a report released on Thursday, OPEC noted the risks of lower summer oil demand amid production cuts announced this month by oil producers. The report also indicated that oil stocks look set to increase in the coming months and that global growth is facing a number of challenges.

Gold is approaching a record high. Yesterday’s session high was $2063.15, less than $16 below the historic high of nearly $2080 set by Comex Gold in August 2020. The rise in gold prices on Thursday came after the US producer price index fell to its highest in almost three years, reinforcing the notion that inflationary pressures are easing and markets expect an end to rate hikes.

Asian markets were also rising yesterday. Japan’s Nikkei 225 (JP225) gained 0.26%, China’s FTSE China A50 (CHA50) added 0.19%, Hong Kong’s Hang Seng (HK50) increased by 0.17%, India’s NIFTY 50 (IND50) gained 0.09%, Australia’s S&P/ASX 200 (AU200) closed negative 0.27%.

China’s exports unexpectedly rose by 14.8% y/y in March, a sharp deviation from market forecasts of a 7% contraction. This also contrasts with the downward export trend over the last five months. Imports fell slightly by 1.4% but still recorded a 15.3% year-on-year increase. The export jump pushes the trade balance up, supporting China’s GDP in the first quarter.

The Monetary Authority of Singapore (MAS) was the latest in a growing list of central banks to suspend future interest rate hikes. The move also came after data showed Singapore’s economy slowed more than expected in the first quarter of 2023.

Bank of Japan Governor Kazuo Ueda said he expects the global economy to recover from a period of slowdown, which will boost domestic wages, keeping the bank’s economic outlook optimistic. Investors will be focused on the first Bank of Japan policy meeting chaired by Ueda on 27-28 April, when the board will present fresh quarterly growth and inflation forecasts for fiscal 2025.

S&P 500 (F) (US500) 4,146.22 +54.27 (+1.33%)

Dow Jones (US30)34,029.69 +383.19 (+1.14%)

DAX (DE40) 15,729.46 +25.86 (+0.16%)

FTSE 100 (UK100) 7,824.84 +39.12 (+0.50%)

USD Index 101.00 −0.50 (−0.49%)

Important events for today:

– Switzerland Producer Price Index (m/m) at 09:30 (GMT+3);
– French Consumer Price Index (m/m) at 09:45 (GMT+3);
– Spain Consumer Price Index (m/m) at 10:00 (GMT+3);
– US Retail Sales (m/m) at 15:30 (GMT+3);
– US Industrial Production (m/m) at 16:15 (GMT+3);
– US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

Financial News Metals

14 Apr

Week Ahead: 3 potential trading opportunities

By ForexTime

Shifting expectations surrounding Fed rate hikes remain the primary driver of financial markets.

Yet, the week ahead still features several other potential catalysts for more opportunities for various assets:

Monday, April 17

GBP: Speech by Bank of England Deputy Governor Jon Cunliffe
USD: Speech by Richmond Fed President Thomas Barkin

Tuesday, April 18

AUD: Australia March household spending; RBA April meeting minutes
CNH: China 1Q GDP; March retail sales, industrial production, jobless rate
EUR: Germany April ZEW survey expectations; Eurozone February trade balance
GBP: UK February unemployment rate; March jobless claims
CAD: Canada March CPI
SPX500_m: Q1 earnings from Goldman Sachs and Bank of America

Wednesday, April 19

JPY: Japan February industrial production (final)
EUR: Eurozone March CPI (final)
GBP: UK March CPI
USD: Fed Beige Book
Crude: EIA weekly US stockpiles data

Thursday, April 20

NZD: New Zealand 1Q CPI
JPY: Japan March external trade
CNH: China loan prime rates
EUR: Eurozone April consumer confidence; ECB March meeting report
USD: Fed speak; US weekly initial jobless claims

Friday, April 21

JPY: Japan March national CPI; April PMIs
EUR: Eurozone April PMIs
GBP: UK April PMIs and consumer confidence; March retail sales
CAD: Canada February retail sales
USD: US April PMIs

1) Brent oil to climb higher towards $90?

With markets now having a stronger grasp of the supply outlook in light of the OPEC+ production cuts, oil markets are set to focus their attentions towards other factors over the coming week:

Look out for the data releases that speak to the health of major economies, such as China’s data dump on Tuesday, as well as PMI readings out of the likes of Japan, the Eurozone, the UK, and the US on Friday.

Of course, there’s the weekly EIA report on US crude stockpiles due on Wednesday to consider as well.

If markets are given fresh evidence that these major economies, especially China, are losing growth momentum, that may drag oil prices lower on fears that global demand may not be robust enough to even absorb the lowered oil supplies.
Similarly, a larger-than-expected build in US crude stockpiles tend to translate into oil prices moderating back towards the $84.47 Fibonacci support (23.6% Fib level from the 2022 high down to the March 2023 trough).
On the other hand, better-than-expected economic data and/or a larger drawdown in US oil stockpiles may boost prices to a new cycle high closer to $90/bbl.

Note that from a technical perspective, Brent still appears “overbought”, which suggests a technical pullback may soon ensue.

2) USDInd to touch 100?

The Fed’s Beige Book due on Wednesday, along with the slate of public speeches by Fed officials on Thursday, should offer insights into what Fed officials will be considering at its upcoming rate decision.

Note that this is the last few chances to hear from Fed officials before they enter a blackout period beginning this Saturday, April 22, ahead of the next FOMC meeting to be held on May 2nd – 3rd.

Should the Fed’s Beige Book present anecdotal evidence about worsening US economic conditions, that may prompt the Fed to ease up on its “demand-destroying” rate hikes. Combined with more Fed officials who state publicly that they’re willing to consider a pause with its rate hikes, such dovish signals may drag the USD index closer towards the psychologically-important 100 mark.
On the other hand, if the Fed’s Beige Book is a repeat of its previous release in suggesting that the US economy remains on solid footing, coupled with Fed officials signalling their continued desire for even more rate hikes to vanquish inflationary pressures, such a hawkish scenario might prompt the USD Index to test resistance around its previous cycle low at 101.385.

3) USDJPY to touch 131?

The Japanese Yen has been lagging behind its G10 peers in taking advantage of the weaker US dollar.

So far in April, JPY has gained by merely 0.23% against the greenback, putting it in last place among its G10 counterparts’ month-to-date performance against the buck.

This has been largely due to markets paring bet their bets over a rate hike by the Bank of Japan, under the stewardship of new governor Kazuo Ueda.

However, Japan’s national consumer price index (CPI) release on Friday may provide enough reason to reawaken expectations that the BoJ can finally move closer to exiting negative interest rates, perhaps first by further tweaking its YCC (yield curve control) programme.

A higher-than-3.2% headline inflation print may allow the Yen to play catch up and push USDJPY back lower and closer towards the psychologically-important 130 level.
A lower-than-3.2% headline inflation print may force markets to further delay their bets for when that BoJ rate hike may eventually occur, potentially translating into a breach above its 50-day and 100-day simple moving averages (SMAs) for USDJPY.

From current levels at the time of writing, Bloomberg’s FX model is now pointing to a slightly higher chance (42%) that USDJPY will touch the 131 mark rather than the 134 level (38% chance) over the next one-week period.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Economics & Fundamentals Opinions

13 Apr

Earnings season guidance will give recession clues

By George Prior

Investor focus is set to shift from inflation to earnings season, which starts on Friday, as it will give us more insight about a forthcoming recession, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The assessment from deVere Group’s Nigel Green comes ahead of earnings reports on Friday from major Wall Street banks including JPMorgan Chase, Citigroup, and Wells Fargo. Among other companies reporting next week are Tesla, IBM, and Johnson & Johnson.

He says: “For weeks it’s all been about the trajectory of inflation and subsequent interest rate hikes for investors. But the focus is now shifting to earnings season.

“The big banks will be keenly watched as not only do they often set the mood music for the rest of the season, but also because they are more intricately linked to the rest of the economy than most other sectors.

“In addition, they’ll be more in focus than ever following the crisis triggered by Silicon Valley Bank last month.”

Should banks report lower earnings or revenue than expected, it could be a sign that they are experiencing issues with lending and other financial activities.

“If banks are struggling, it could make it more difficult for businesses and consumers to access credit, which could in turn further slow down economic growth and lead to a recession,” notes the deVere Group CEO.

“Plus, a fall in bank earnings could indicate a lack of confidence in the wider economy, which would cause investors to pull back on their investments and further exacerbate the likelihood of a forthcoming recession.”

With established economic indicators – such as the inverted yield curve – currently flashing up signs of a possible recession, investors will not only be analyzing the reports about last quarter’s earnings, they will be looking at the accompanying guidance for the months ahead.

“Guidance will be in the forefront of investors’ minds this earnings season. Last time around, there was a lot of negative guidance from corporates and I think we’ll have much of the same this time too,” says Nigel Green.

“Corporate guidance in earnings season is critical for the wider economy because it provides insight into the future expectations of companies, which will impact investor sentiment and overall economic activity.”

Earlier this week the CEO said that bond markets and stock markets are not singing the same tune currently. “Both cannot be right. This gaping disconnect between bonds and stocks suggests that investors should brace themselves for significant volatility this quarter” in global financial markets.

“Should the US, the world’s largest economy, fall into a recession, it would clearly have a global impact. Investors will be doing a deep-dive into corporate guidance statements as earnings season kicks off, as recession fears have been increasing in recent weeks,” he concludes.

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Financial News

13 Apr

Japanese Candlesticks Analysis 13.04.2023 (EURUSD, USDJPY, EURGBP)

By RoboForex.com

EURUSD, “Euro vs US Dollar”

On H4 near the resistance, EURUSD has formed a Harami reversal pattern. The instrument may now go by the reversal signal in a descending wave. The target for the correction might be 1.0935. However, the pair may grow to 1.1040 and continue the uptrend without testing the support.

USDJPY, “US Dollar vs Japanese Yen”

On H4, the pair has formed a Hammer reversal pattern. The instrument is now going by the reversal signal in an ascending wave. The target for the growth might be 134.10. However, the price may pull back to 132.70 and continue the uptrend after correcting to the support.

EURGBP, “Euro vs Great Britain Pound”

On H4, EURGBP has formed a Shooting Star reversal pattern. Currently, the instrument is going by the reversal signal in a descending wave. The target for the decline might be the support at 0.8770. Upon testing and breaking it, the price could continue the downtrend. However, the quotes may correct to 0.8815 before declining.

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

Financial News Forex and Currency News

13 Apr

FX Majors Break Through Key Levels

By ForexTime

Markets love round numbers! They act as important psychological markers and can prompt strong reactions in price action as well as grabbing the headlines. These levels can also act as decisive areas of resistance and support on a technical basis, with 1000s of orders to buy and sell usually located in these critical zones of confluence.

The current dollar slide has seen the world’s reserve currency fall over 4% from its early March peak. This has pushed two of the most popular majors similarly through significant round numbers. EUR/USD has taken out 1.10 while GBP/USD has advanced through 1.25 in early trade this morning.

The latter needs to close decisively above the year-to-date early February top at 1.1032 to cement this move north. Trend oscillators across various timeframes show the move still has legs. Cable bulls are eyeing up a weekly finish above the April peak at 1.2525 for more upside.

These moves come after two big risk events on yesterday’s calendar which has prompted dollar driven selling over any major strength in either the euro or sterling. That said, interest rates have been narrowing over the past few weeks between euro, UK and US rates as the Fed is increasingly seen as being near the end of its rate hiking cycle, while the ECB and the Bank of England still have some work to do.

CPI and Fed Minutes not helping USD

The marquee risk event of the week hit our screens yesterday with US headline inflation data falling to 5% in March while the core prints remained relatively hot and sticky. It is the monthly core reading of 0.4% which may still concern the Fed at its May meeting, as it is more than double what many economists reckon is needed to average over time to bring the annual rate of core inflation back to the central bank’s 2% target. Money markets didn’t budge a great deal after the data release, moving modestly lower to around a 66% chance of a 25bp rate hike from 75% before CPI. Analysts also note that a lot of the current price pressures are down to shelter costs which are backward-looking and set to turn lower in the coming months.

Also, important yesterday was the release of the FOMC minutes from its March meeting which gave a nod to the recent stress in the banking sector as tighter lending conditions are seen as a material factor. This is because they typically end up with higher unemployment, a recession and ultimately rate cuts. The ”r” word was actually also mentioned in the meeting minutes as a mild recession is now part of the Fed’ baseline scenario. It seems the window for a soft landing is closing rapidly with the first few weeks in May and numerous central bank meetings to determine if the dollar sinks below its February low at 100.82 on the DXY.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Financial News Forex and Currency News

13 Apr

Overall inflationary pressures in the US are easing, but core inflation remains high

By JustMarkets

The US stock market was mostly down yesterday. At the close of trading, the Dow Jones Index (US30) decreased by 0.11%, and the S&P 500 Index (US500) lost 0.41%. The NASDAQ Technology Index (US100) fell by 0.85%.

The US Consumer Price Index declined from 6% to 5% year-on-year. Core inflation (excluding food and energy prices) rose from 5.5% to 5.6% y/y, with the Index adding 0.4% for the month. This data disappointed investors as the key inflation indicator shows no signs of slowing down, which increases the likelihood of another interest rate hike by the Fed. CME FedWatch Tool shows a 68% probability that the Fed will raise the interest rate by 0.25% at the May meeting. Comments from FOMC officials diverge. San Francisco Fed President Mary Daly pointed out that the Fed needs to keep raising interest rates, with another Fed official, Harker, indicating that the Central Bank may no longer need to raise interest rates monthly as overall inflation in the US is falling. The factory inflation (PPI) report will be released today, which will give more information on inflationary pressures.

The minutes of the Federal Reserve’s March meeting showed that policymakers are concerned about a mild recession this year. Although the Central Bank is likely to pause the interest rate hike cycle in the near future, a subsequent slowdown in economic growth could be a bad omen.

The slowdown in US inflation is shifting investor focus to the reporting season. Investors believe a strong corporate reporting season may be needed for a decisive rise in equities. The upcoming reporting season begins on April 14 with the release of results from major Wall Street banks, including JPMorgan Chase (JPM), Citigroup Inc (C), and Wells Fargo (WFC), which investors will be scrutinizing to gauge the impact of last month’s banking crisis.

The Bank of Canada left interest rates unchanged for the second consecutive meeting. The central bank kept the interest rate at 4.5%, in line with economists’ expectations. But the door for further rises remains open and further policy will depend on the next inflation and GDP data. BoC chief Maclem indicated at a press conference that the governing council discussed the likelihood of rates remaining in restrictive territory for a longer period in order to curb inflation.

Equity markets in Europe mostly rose on Tuesday. By the end of the day, German DAX (DE30) gained 0.31%, French CAC 40 (FR40) added 0.09%, Spanish IBEX 35 (ES35) increased by 0.40%, and the British FTSE 100 (UK100) gained 0.50% yesterday.

ECB spokesman and head of the Austrian Central Bank, Robert Holzmann, believes that the ECB needs to raise the interest rate by 0.5% in May. However, other ECB policymakers are in favor of a 0.25% increase. Before the May meeting, the Eurozone will publish another inflation report, which is likely to tell which move Europe’s Central Bank will choose. If core inflation shows no signs of slowing, the ECB will be more decisive.

Gold strengthened its position in the $2000 territory on Wednesday, hitting another peak. Despite a mixed US inflation report, government bond yields fell yesterday. Gold and silver are inversely correlated to US bond yields.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up by 0.57%, China’s FTSE China A50 (CHA50) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) was down by 0.86%, India’s NIFTY 50 (IND50) added 0.51%, Australia’s S&P/ASX 200 (AU200) closed positive by 0.47%.

Bank of Japan Governor Ueda indicated yesterday that he wants to take the first step towards closer relations with “peers.” By peers, he means the other global central banks. Thus, there is a growing probability that the BoJ will start to move toward monetary policy normalization in the near future. The Japanese yen is strengthening amid such rumors.

S&P 500 (F) (US500)4,091.95 −16.99 (−0.41%)

Dow Jones (US30) 33,646.50 −38.29 (−0.11%)

DAX (DE40) 15,703.60 +48.43 (+0.31%)

FTSE 100 (UK100) 7,824.84 +39.12 (+0.50%)

USD Index 101.57 -0.64 (-0.62%)

Important events for today:

– Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
– China Trade Balance (m/m) at 06:00 (GMT+3);
– UK GDP (m/m) at 09:00 (GMT+3);
– UK Industrial Production (m/m) at 09:00 (GMT+3);
– UK Manufacturing Production (m/m) at 09:00 (GMT+3);
– UK Trade Balance (m/m) at 09:00 (GMT+3);
– German Consumer Price Index (m/m) at 09:00 (GMT+3);
– Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
– US Producer Price Index (m/m) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Canada BoC Gov Macklem Speaks at 16:00 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

12 Apr

What are passkeys? A cybersecurity researcher explains how you can use your phone to make passwords a thing of the past

By Sayonnha Mandal, University of Nebraska Omaha

Passwords could soon become passé.

Effective passwords are cumbersome, all the more so when reinforced by two-factor authentication. But the need for authentication and secure access to websites is as great as ever. Enter passkeys.

Passkeys are digital credentials stored on your phone or computer. They are analogous to physical keys. You access your passkey by signing in to your device using a personal identification number (PIN), swipe pattern or biometrics like fingerprint or face recognition. You set your online accounts to trust your phone or computer. To break into your accounts, a hacker would need to physically possess your device and have the means to sign in to it.

As a cybersecurity researcher, I believe that passkeys not only provide faster, easier and more secure sign-ins, they minimize human error in password security and authorization steps. You don’t need to remember passwords for every account and don’t need to use two-factor authentication.

How passkeys work

Passkeys are generated via public-key cryptography. They use a public-private key pair to ensure a mathematically protected private relationship between users’ devices and the online accounts being accessed. It would be nearly impossible for a hacker to guess the passkey – hence the need to physically possess the device the passkey is accessed from.

Passkeys consist of a long private key – a long string of encrypted characters – created for a specific device. Websites cannot access the value of the passkey. Rather, the passkey verifies that a website possesses the corresponding public key. You can use the passkey from one device to access a website using another device. For example, you can use your laptop to access a website using the passkey on your phone by authorizing the login from your phone. And if you lose your phone, the passkey can be stored securely in the cloud with the phone’s other data, which can be restored to a new phone.

Passkeys explained in 76 seconds.

Why passkeys matter

Passwords can be guessed, phished or otherwise stolen. Security experts advise users to make their passwords longer with more characters, mixing alphanumeric and special symbols. A good password should not be in the dictionary or in phrases, have no consecutive letters or numbers, but be memorable. Users should not share them with anyone. Last but not least, users should change passwords every six months at minimum for all devices and accounts. Using a password manager to remember and update strong passwords helps but can still be a nuisance.

Even if you follow all of the best practices to keep your passwords safe, there is no guarantee of airtight security. Hackers are continuously developing and using software exploits, hardware tools and ever-advancing algorithms to break these defenses. Cybersecurity experts and malicious hackers are locked in an arms race.

Passkeys remove the onus from the user to create, remember and guard all their passwords. Apple, Google and Microsoft are supporting passkeys and encourage users to use them instead of passwords. As a result, passkeys are likely to soon overtake passwords and password managers in the cybersecurity battlefield.

However, it will take time for websites to add support for passkeys, so passwords aren’t going to go extinct overnight. IT managers still recommend that people use a password manager like 1Password or Bitwarden. And even Apple, which is encouraging the adoption of passkeys, has its own password manager.

About the Author:

Sayonnha Mandal, Lecturer in Interdisciplinary Informatics, University of Nebraska Omaha

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Opinions Programming

12 Apr

Murrey Math Lines 11.04.2023 (AUDUSD, NZDUSD)

By RoboForex.com

AUDUSD, “Australian Dollar vs US Dollar”

On H4, the quotes are under the 200-day Moving Average, indicating the prevalence of a downtrend. The RSI is testing the resistance line. In this situation, a downward breakout of 5/8 (0.6652) is expected, after which the price could drop to the support at 4/8 (0.6591). The scenario can be canceled if the quotes rise above the resistance at 6/8 (0.6713), which can lead to a trend reversal and growth of the pair to 7/8 (0.6774).

On M15, the decline in the price can be additionally supported by a breakaway of the lower line of the VoltyChannel indicator.

NZDUSD, “New Zealand Dollar vs US Dollar”

On the NZDUSD chart, the situation is similar. On H4, the quotes are under the 200-day Moving Average, revealing the prevalence of a downtrend, and the RSI is testing the resistance line. In these circumstances, a downwards breakout of 4/8 (0.6225) is to be expected, after which the price could fall to the support at 2/8 (0.6164). The scenario can be canceled by the price rising above the resistance at 5/8 (0.6256), which can end up in a trend reversal and growth of the pair to 7/8 (0.6317).

On M15, the lower line of VoltyChannel is broken, which confirms the downtrend and increases the probability of further price falling.

Article By RoboForex.com

Financial News Forex and Currency News

12 Apr

Don’t bet with ChatGPT – study shows language AIs often make irrational decisions

By Mayank Kejriwal, University of Southern California

The past few years have seen an explosion of progress in large language model artificial intelligence systems that can do things like write poetry, conduct humanlike conversations and pass medical school exams. This progress has yielded models like ChatGPT that could have major social and economic ramifications ranging from job displacements and increased misinformation to massive productivity boosts.

Despite their impressive abilities, large language models don’t actually think. They tend to make elementary mistakes and even make things up. However, because they generate fluent language, people tend to respond to them as though they do think. This has led researchers to study the models’ “cognitive” abilities and biases, work that has grown in importance now that large language models are widely accessible.

This line of research dates back to early large language models such as Google’s BERT, which is integrated into its search engine and so has been coined BERTology. This research has already revealed a lot about what such models can do and where they go wrong.

For instance, cleverly designed experiments have shown that many language models have trouble dealing with negation – for example, a question phrased as “what is not” – and doing simple calculations. They can be overly confident in their answers, even when wrong. Like other modern machine learning algorithms, they have trouble explaining themselves when asked why they answered a certain way.

People make irrational decisions, too, but humans have emotions and cognitive shortcuts as excuses.

Words and thoughts

Inspired by the growing body of research in BERTology and related fields like cognitive science, my student Zhisheng Tang and I set out to answer a seemingly simple question about large language models: Are they rational?

Although the word rational is often used as a synonym for sane or reasonable in everyday English, it has a specific meaning in the field of decision-making. A decision-making system – whether an individual human or a complex entity like an organization – is rational if, given a set of choices, it chooses to maximize expected gain.

The qualifier “expected” is important because it indicates that decisions are made under conditions of significant uncertainty. If I toss a fair coin, I know that it will come up heads half of the time on average. However, I can’t make a prediction about the outcome of any given coin toss. This is why casinos are able to afford the occasional big payout: Even narrow house odds yield enormous profits on average.

On the surface, it seems odd to assume that a model designed to make accurate predictions about words and sentences without actually understanding their meanings can understand expected gain. But there is an enormous body of research showing that language and cognition are intertwined. An excellent example is seminal research done by scientists Edward Sapir and Benjamin Lee Whorf in the early 20th century. Their work suggested that one’s native language and vocabulary can shape the way a person thinks.

The extent to which this is true is controversial, but there is supporting anthropological evidence from the study of Native American cultures. For instance, speakers of the Zuñi language spoken by the Zuñi people in the American Southwest, which does not have separate words for orange and yellow, are not able to distinguish between these colors as effectively as speakers of languages that do have separate words for the colors.

Making a bet

So are language models rational? Can they understand expected gain? We conducted a detailed set of experiments to show that, in their original form, models like BERT behave randomly when presented with betlike choices. This is the case even when we give it a trick question like: If you toss a coin and it comes up heads, you win a diamond; if it comes up tails, you lose a car. Which would you take? The correct answer is heads, but the AI models chose tails about half the time.

screenshot of text dialogue — ChatGPT is not clear on the concept of gains and losses.
ChatGPT dialogue by Mayank Kejriwal, CC BY-ND

Intriguingly, we found that the model can be taught to make relatively rational decisions using only a small set of example questions and answers. At first blush, this would seem to suggest that the models can indeed do more than just “play” with language. Further experiments, however, showed that the situation is actually much more complex. For instance, when we used cards or dice instead of coins to frame our bet questions, we found that performance dropped significantly, by over 25%, although it stayed above random selection.

So the idea that the model can be taught general principles of rational decision-making remains unresolved, at best. More recent case studies that we conducted using ChatGPT confirm that decision-making remains a nontrivial and unsolved problem even for much bigger and more advanced large language models.

Getting the decision right

This line of study is important because rational decision-making under conditions of uncertainty is critical to building systems that understand costs and benefits. By balancing expected costs and benefits, an intelligent system might have been able to do better than humans at planning around the supply chain disruptions the world experienced during the COVID-19 pandemic, managing inventory or serving as a financial adviser.

Our work ultimately shows that if large language models are used for these kinds of purposes, humans need to guide, review and edit their work. And until researchers figure out how to endow large language models with a general sense of rationality, the models should be treated with caution, especially in applications requiring high-stakes decision-making.

About the Author:

Mayank Kejriwal, Research Assistant Professor of Industrial & Systems Engineering, University of Southern California

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Opinions Programming

12 Apr

The IMF has published a new economic forecast. Investors awaiting US inflation report and Fed meeting minutes

By JustMarkets

The US stock market traded without a single trend yesterday. At the close of trading, Dow Jones Index (US30) increased by 0.29%, S&P 500 (US500) closed at opening levels. The Technology Index NASDAQ (US100) was down by 0.43%. At the moment, the situation in the US stock market is mixed. Investors are waiting for the US inflation report and the latest Federal Reserve meeting minutes. These two reports will explain the US Federal Reserve’s future policy. Rising core inflation and hawkish FOMC minutes could add confidence to the dollar as it increases the likelihood of another 0.25% interest rate hike at the May 3 meeting. Conversely, lower inflationary pressures, along with non-hawkish FOMC minutes, could trigger a sell-off in the dollar.

Fed officials are signaling disagreement over whether to raise rates again. New York Fed President John Williams said on Tuesday that Fed officials still have a lot of work to do to bring rates down and suggested they would stay the course. Meanwhile, Chicago Fed President Austan Goolsbee, who is voting on monetary policy decisions this year, instead called for “prudence and patience” in assessing the economic impact of tightening credit conditions. Williams, speaking earlier in the interview, said the average forecast by Fed officials in March suggests another interest rate hike this year, followed by a pause.

First-quarter earnings reports from major banks, including JPMorgan (JPM ), Citigroup (C), and Wells Fargo (WFC), will also be released this week. Analysts expect S&P 500 companies to report a 5.2% year-on-year decline in first-quarter earnings as they lower expectations.

The International Monetary Fund on Tuesday cut its global growth forecast for 2023 as higher interest rates dampened activity and warned that a severe worsening of turmoil in the financial system could reduce output almost to recessionary levels. The IMF currently forecasts global real GDP growth of 2.8% in 2023 and 3.0% in 2024, a sharp slowdown from 3.4% in 2022 due to monetary tightening. The IMF forecast for the US has slightly improved: Growth in 2023 is forecast at 1.6% compared with a forecast of 1.4% in January. But the Fund has lowered forecasts for some major economies, including Germany, which is forecast to contract by 0.1% in 2023, and Japan, where growth is forecast at 1.3% instead of the 1.8% forecast in January.

The Fund also envisaged a severe deterioration scenario with a much broader exposure to bank balance sheet risks, leading to a sharp credit contraction in the US and other advanced economies, a significant reduction in household spending, and an exodus of investment funds into dollar-denominated safe haven assets. Emerging market countries would be hit hard by lower export demand, currency depreciation, and a sharp rise in inflation. That said, central banks should not stop fighting inflation because of financial stability risks that look “largely subdued.”

Equity markets in Europe mostly rallied on Tuesday. Germany’s DAX (DE30) ended the day up 0.37%, France’s CAC 40 (FR40) added 0.89% over yesterday, Spain’s IBEX 35 Index (ES35) lost 0.80%, Britain’s FTSE 100 (UK100) gained 0.57% over yesterday.

The IMF forecasts released yesterday do not take into account the impact of the recent OPEC+ oil production cuts, which caused a jump in oil prices. The IMF assumes an average world oil price of $73 a barrel in 2023, well below the price of current oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 1.05%, China’s FTSE China A50 (CHA50) decreased by 0.59%, Hong Kong’s Hang Seng (HK50) added 0.76%, India’s NIFTY 50 (IND50) gained 0.56%, Australia’s S&P/ASX 200 (AU200) closed positive by 1.26%.

The head of Japan’s leading banking group MUFG believes that the Bank of Japan may end its control of the yield curve by September. On Monday, Ueda said at his first press conference as governor of the Bank of Japan that it would be “appropriate” to maintain control of the yield curve. Ueda added that the bank could explore a “more sustainable structure that takes into account spillover effects,” hinting at changes in the future. According to analysts, if the Bank of Japan is confident that inflation will reach a stable level, it could possibly abolish its negative interest rate policy in the fiscal year 2024.

S&P 500 (F) (US500)4,108.94 −0.17 (−0.0041%)

Dow Jones (US30) 33,684.79 +98.27 (+0.29%)

DAX (DE40) 15,655.17 +57.28 (+0.37%)

FTSE 100 (UK100) 7,785.72 +44.16 (+0.57%)

USD Index 102.15 -0.43 (-0.41%)

Important events for today:

– US FOMC Harker Speaks at 01:00 (GMT+3);
– US FOMC Kashkari Speaks at 02:30 (GMT+3);
– Japan Producer Price Index (m/m) at 02:50 (GMT+3);
– Indian Consumer Price Index (m/m) at 15:00 (GMT+3);
– US Consumer Price Index (m/m) at 15:30 (GMT+3);
– UK BoE Gov Bailey Speaks at 16:00 (GMT+3);
– Canada BoC Interest Rate Decision at 17:00 (GMT+3);
– Canada BoC Monetary Policy Report at 17:00 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– Canada BoC Press Conference at 18:00 (GMT+3);
– US FOMC Meeting Minutes at 21:00 (GMT+3);
– UK BoE Gov Bailey Speaks at 22:15 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

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