The U.S., Economic News, and the Global Financial Cycle

We provide evidence for a causal link between the U.S. economy and the global financial cycle. Using intraday data, we show that U.S. macroeconomic news releases have large and significant effects on global risky asset prices. Stock price indexes of 27 countries, the VIX, and commodity prices all jump instantaneously upon news releases. The responses of stock indexes co-move across countries and are large—often comparable in size to the response of the S&P 500. Further, U.S. macroeconomic news explains on average 23% of the quarterly variation in foreign stock markets. The joint behaviour of stock prices, bond yields, and risk premia suggests that systematic U.S. monetary policy reactions to news do not drive the estimated effects. Instead, the evidence points to a direct effect on investors’ risk-taking capacity. Our findings show that a byproduct of the U.S.’s central position in the global financial system is that news about its business cycle has large effects on global financial conditions.