Understanding key data that will increase your chances of success within the financial industry.
In some of our previous articles we have touched on the importance of market cycles, as well as how fundamental and economic changes drive the market movement . In this article we will be looking at the major economic indicators you should look out for.
Thanks to the internet, the vast majority of traders have access to economic surveys and indicators, whereas in the past only experienced professionals and economists could benefit from accessing this data.
The data can be divided into three main groups:
- Interest rate & Monetary Policy data
- Employment and Jobs data
- Consumption and production data
We always have to keep in mind though, that most of this data is based on the US economy, since it's the biggest financial powerhouse that moves the global markets.
Let's start by looking at Interest rate and Monetary policy.
For the US, the FEDERAL OPEN MARKET COMMITTEE (or FOMC), make scheduled announcements 8 times a year regarding Interest rates as well as Monetary policy. These announcements can have a massive impact on the global markets. The reason is simple, both the interest rates and monetary policy affect the cost of borrowing as well as the money supply in the market.
Other economies such as the Eurozone, Australia, Japan, Switzerland and China have their own scheduled announcements where they set their interest rate and monetary policy.
Moving on, the second economic indicator traders should look at is Employment and jobs data.
This data is very important, because job creation is a leading indicator of consumer spending which in-turn accounts for the majority of a country's overall economic activity.
The most important figure is the non-farm payroll or also commonly known and referred to as the NFP. The NFP accounts for approximately 80% of the workers who produce the entire Gross domestic product (or GDP) of the United States.
This important piece of economic data is released on a monthly basis, with the release date usually being the first Friday after the month ends. The combination of importance and earliness can make for a hefty market impact.
Other indicators to look at within the employment and jobs data area include the:
EMPLOYEE COST INDEX (or ECI)
EMPLOYMENT SITUATION REPORT
And WEEKLY JOBLESS CLAIMS REPORT
Moving on to the third category of indicators traders should look at is consumption and production data.
There are various reports that measure different aspects of consumption and production so it's usually up to the investor to piece it all together. Some examples include:
- GROSS DOMESTIC PRODUCT(or GDP)
- PURCHASING MANAGERS INDEX (or PMI)
- PHILLY FED REPORT
- CONSUMER CONFIDENCE INDEX
- PRODUCER PRICE INDEX
- CONSUMER PRICE INDEX
- And the EXISTING HOME SALES REPORT AND HOUSING STATS
In general, the key is to look out for news that is relevant to the current market climate.
For example, when the market has been bullish and interest rates are really low, investors will keep their eyes open for any indication of an interest rate increase, as this will have a major impact on the market.
Please remember:
ALWAYS DO YOUR RESEARCH and MAKE INFORMED TRADING DECISIONS.
