Figures to Watch
Fundamental trading demands an understanding of what economic figures represent and how they affect the product traded. Every day many figures are released reflecting economic conditions throughout the world. Below is a summary of some of the key figures to watch.
Macroeconomic Indicators
Macroeconomic indicators reflect the conditions of productivity in different areas of the economy. As soon as these figures are published traders gain an insight into the latest economic trends and can position their trades accordingly. Lagging indicators review past trading conditions and leading indicators reflect future perception of economic productivity.
Gross Domestic Product, GDP:
GDP is one of the major economic indicators that generally reflect the state of the national economy. GDP measures an economy's total expenditure on newly produced goods and services and the total income earned from the production of these goods and services. In particular, the GDP is the market value of all final goods and services produced within a country in a given period of time. The formula used to compute GDP is: GDP= Consumption spending + Investment spending + Government spending + Imports and Exports. GDP does not discriminate between those goods and services made by the people of that country or by foreigners. As long as the goods and services are made within that country's borders, it counts towards the GDP.
Nonfarm Employment Change:
Nations release data relating to the change of employment levels that expresses the vitality of their economy. On the first Friday of each month the change in Nonfarm employment (all workers outside the agricultural industry) for the United States is released and is the most eagerly awaited employment figure, which can provide significant trading opportunities.
Zew Economic Sentiment:
Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment is a leading indicator that gives an indication of future economic activity in the German economy. Every month the survey reports on what percentage of investors are optimistic or pessimistic about future trading conditions.
Consumer Confidence Survey
This leading indicator of consumer spending gauges public confidence about the health of the U.S. economy. It's based on a random sampling of 5,000 people asked how they feel about business conditions, the labour market, consumer spending, economic growth and their employment and financial expectations six months into the future (www.consumerresearch center.org)
Industrial Production
An economic report that measures changes in output for the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of GDP (Gross Domestic Product), they are highly sensitive to interest rates and consumer demand
IFO
The Information and Forschung (Ifo) Business Climate Index measures the sentiment within sectors of German firms in manufacturing, construction, wholesale and retail. The index is derived from a monthly survey of over 7,000 firms where respondents are asked to give their assessments of the current business situation and their expectations for the next six months. The indicator reading is a transformed mean of the balances of the business situations and the expectations, and can fluctuate between extreme values of -100 (i.e., all responding firms appraise their situation as poor or expect business to become worse) and +100 (i.e., all responding firms assessed their situation as good or expect an improvement in their business).
It must be remembered of course that the traded instruments themselves also act as macroeconomic indicators. For example, a sell off in the S&P 500 could be used as an indication to place a short term long position in US government bonds to profit from a reaction of an inverse relationship between the two.
Interest Rates and Inflation
Key to the functioning of any economy is the control of inflation and the stimulus of growth. The following indicators and events give traders information on the direction of interest rates and inflation.
Central Bank Meetings
Monthly policy meetings at Global central banks such as the ECB or The Bank of England are eagerly anticipated by futures traders. Not only does the setting of the headline interest rate play a major role in economic outlook but seasoned traders know how to react if specific words are mentioned (or not mentioned) in the press conferences that follow, for example the President of the ECB, Jean Claude Trichet's reliance on the word 'Vigilance'.
PPI
Producer Price Index is a weighted index of all prices measured at the wholesale, or producer level. A positive figure, for example 2% would reflect steady inflationary conditions, a negative figure would reflect deflationary conditions. RPI or Retail Price index reflects the same but for prices seen at the consumer level.