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Almost every day there are major economic data releases that could have a significant impact on your current open positions.
These releases typically give an insight into a particular country’s economic health and can have wider ramifications if the data is from a major economy, such as the US or eurozone. These important figures are seen as statistical evidence to back up views on whether or not a region is doing well.
Most global economic data releases are similar across the major world economies but, for the benefit of example, the US and its currency will be used. Typically, these releases are closely followed by those who look to trade foreign exchange, but be aware that these releases also affect global stocks, commodities and treasuries.
A major point to be aware of is that the biggest moves in the market usually occur if the figures come out majorly against general consensus. Most economic data is preceded by economists and investment banks expressing a view on what they think these figures might be like, and publishing these views or expectations in advance. It can make for an exciting ride if, or when, the ‘experts’ get it wrong.
To get started, let’s look at major US statistics that influence the foreign exchange markets directly.
Released quarterly (at 8:30am EST), about 30 days after the quarter ends
This is the broadest measure of US transactions with the rest of the world. This quarterly statistic measures US trade in goods and services and includes income from investments overseas and payments to entities overseas. A positive value (current account surplus) indicates that the flow of capital from these components into the US exceeds the capital leaving the country (more money coming in than leaving the country). A negative value (current account deficit) means that there is a net capital outflow from these sources (there is more money leaving the country than coming in). Rising long-term current account deficits can have negative implications for the US dollar as it impacts the likelihood of future interest rate hikes if the economy is not doing so well.
Released (at 8.30am EST) about 40 days after the month’s end
This statistic is the difference between US exports and imports of goods and services, such as cars, electronics, textiles, banking and insurance. A positive balance is known as a trade surplus and this occurs if there are more exports than imports of the above goods and services. A negative balance is referred to as a trade deficit or, informally, borrowed prosperity, living beyond a nation’s means, or a trade gap. Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation’s exports. Export demand also impacts production and prices at domestic manufacturers. The implications over the long term of a deteriorating trade balance is to put downward pressure on the dollar.
Released monthly (at 8:30am EST), about 15 days after the month ends
This is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. The CPI is commonly considered the best monthly measure of inflation for the US economy. Food and energy prices account for about a quarter of CPI, but they tend to be very volatile and distort the underlying trend. The FOMC (Federal Open Market Committee) usually pays the most attention to 'core’ data (which excludes food and energy from the CPI figure), and so do traders. A rapid increase in the value of the CPI figures can give way to inflationary fears as rising prices could lead the central bank to respond by raising interest rates. Raising rates generally leads to less disposable income, reducing spending and thus decreasing inflationary pressure. An increase in interest rates usually increases the value of a nation’s currency, but it can negatively impact the stock market in the short term. This is because some investors may decide to hold money in deposit as cash to earn interest rather than investing in the market, which is seen to be more risky
Released monthly (at 8:30am EST), about 17 days after the month ends
This index measures the change in price of factory produced goods. Analysts focus on ‘core’ PPI inflation — the rate of change in finished goods’ prices, excluding food and energy prices (as these tend to add too much volatility to the figures). The PPI is a goods-only index and does not include the cost of transportation, wholesaling and retailing. It does not measure costs in the service sector. PPI tends to have more impact when it’s released ahead of CPI data because the reports are significantly correlated. It’s a leading indicator of consumer inflation - when producers charge more for goods and services the higher costs are usually passed on to the consumer. A rapid rise in PPI is considered inflationary and can depress bond prices and increase long-term interest rates. The impact on the US dollar and stocks is not usually clear and has to be read in conjunction with other economic data releases.
Released monthly (at 8:30am EST), usually on the first Friday after the month ends
This is a monthly survey statistic of nationwide non-farm payroll employment across the US and is one of the most important and closely watched economic releases in the world. It is intended to represent the total number of paid US workers of any business, excluding:
The total non-farm payrolls account for approximately 80% of the workers who produce the entire gross domestic product of the United States. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. The non-farm payrolls statistic is used by government policy makers and economists to determine the current state of the economy, and predict future levels of economic activity. If employment is strong, interest rates and the US dollar will normally rise. If the figures are weak then interest rates and the dollar will usually fall. A strong payrolls figure can provide the stock markets with a boost if it signals a recovery in the economy. Make sure to note this date in your diaries each month.
Released weekly (at 8:30am EST), five days after the week ends
This is the number of individuals who filed for unemployment insurance for the first time during the past week. This is the US’s earliest economic data. Market impact fluctuates from week to week and there tends to be more focus on the release when traders need to diagnose recent developments, or when the reading is extreme. Although it’s generally viewed as a lagging indicator (it comes out five days after the week ends), the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions. If unemployment claims increase, you might expect the stock market and US dollar to fall in value.
Released quarterly (at 8:30am EST), about 30 days after the quarter ends
The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period – you can think of it as the ‘size’ of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.
As one can imagine, economic production and growth (what GDP represents) have a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labour to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market and that nation’s currency. If the US came out with a positive GDP figure it would be expected that the US dollar would rise as the economy strengthens.
Released monthly (at 8:30am EST), about 14 days after the month ends
This figure represents the total of durable and non-durable goods sales to consumers. Services are largely excluded from this statistic. The retail sales figure have additional relevance during the Christmas period as this sector makes a large percentage of its total yearly revenue at this time. Monthly changes are often erratic and the data is subject to later large revisions. Despite this, the implications of strong retail sales can be good news for stocks and the US dollar and vice versa
Released monthly (at 9:00am EST), about 16 days after the month ends
This economic report measures changes in output for the industrial sector of an 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. This makes industrial production an important tool for forecasting future GDP and economic performance. Industrial production figures are also used by central banks to measure inflation, as high levels of industrial production can lead to uncontrolled levels of consumption and rapid inflation. An acceleration of growth in industrial production is, in the first instance, positive for the US dollar and can put pressure on interest rates to rise.
Released monthly (at 10:00am EST) on the first business day after the month ends
The PMI is an index based on a survey of corporate purchasing managers (from construction, services and manufacturing) on the state of the industry as they see it. PMI is a very important sentiment reading, not only for manufacturing, but also for the economy as a whole. Although US manufacturing is not the huge component of total gross domestic product (GDP) that it once was, this industry is still where recessions tend to begin and end. For this reason, the PMI is very closely watched, often setting the tone for the upcoming month and other indicator releases.
The magic number for the PMI is 50. A reading of 50 or higher generally indicates that the industry is expanding. If manufacturing is expanding, the general economy should be doing likewise. As such, it is considered a good indicator of future GDP levels. Many economists will adjust their GDP estimates after reading the PMI report. Another useful figure to remember is 42. An index level higher than 42%, over time (months and years), is considered the benchmark for economic (GDP) expansion. The different levels between 42 and 50 speak to the strength of that expansion. If the number falls below 42%, recession could be just around the corner. The index is designed so that a reading above 50 means that purchasing managers expect manufacturing conditions to improve. PMI readings should rise as the pace of spending remains healthy. Accelerating manufacturing output will strain capacity, pushing producer price inflation higher. If the PMI is well above 50, interest rates and the dollar may rise.
There are a lot of other minor statistics in addition to the ones mentioned above. These are released on an ongoing basis and serve to further reinforce the overall statistical picture of the US (and for that matter, any other) economy at any particular point in time.
In practical terms, other major economies, like the UK, Japan and Germany, have their own versions of similar ‘major’ and ‘minor’ statistics. The Japanese Tankan report of Japanese investing intentions is an example. These statistics are used to paint that country’s own fundamental economic picture and serve as the basis for currency and international comparisons.
Remember to take note of these important data releases, as they can have a large impact on your current open positions and give further insight as to the real state of the economy you are monitoring.