Impact of Weekly Economic News Releases

The case for Weekly Economic News Releases

Cross ref: http://awanginvest.com/?p=701

September 3, 2008 – 12:00 am Once more unto the breach – as our mentor has to answer to the call of other urgent personal duties taking him further away from home to the Northern Hemisphere!

This gives me an opportunity to take aim at the participants of the last seminar held at SMU. One of the findings that surface from the weekend seminar is: more than half of the class are would-be traders or with less than 1 year of trading experience. The rest have more than 2 years of trading experience.

How much the cohort is aware of how fundamental economic news will impact on their decisions when analysing the markets to find the zone and entry point especially when trading the forex market is probably not much. Technical analysis is not enough. To trade the forex market is complex. Fundamental analysis is usually used to predict long-term trends but for short-term traders, economic news releases are fundamental indicators of currency values released at different times of the week or month.

Hence, my constant reminders in my posts to newbies to listen to such weekly economic news data especially of the US, namely:

  • Non-farm Payrolls – released monthly.

It is a compiled name for goods-producing, construction and manufacturing companies. The U.S. Department of Labor Bureau of Labor Statistics releases preliminary data covering the previous month’s survey at 8:30 a.m. ET on the first Friday of every month, or according to the U.S. Department of Labor the report is released on the third Friday after the conclusion of the reference week, i.e, the week which includes the 12th of the month, and usually heavily affects the USD, the Bond Market and the Stock Market if it is even slightly different from what is expected.

  • Purchasing Managers Index -PMI or ISM Index.

A PMI of more than 50 represents expansion of the manufacturing sector, compared to the previous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change. Prior to September 1, 2001, the acronym (PMI) stood for Purchasing Managers’ Index. The Institute of Supply Management (ISM) now uses only the acronym, PMI.

  • Consumer Price Index – CPI or Headline Inflation.

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.

  • Retail Sales

The U.S. Census Bureau produces the Annual Revision of Monthly Retail and Food Services to provide revised national estimates by kind of business of annual and monthly sales for establishments classified in the retail trade and food services industries. Estimates of end-of-month inventories and inventory-to-sales ratios are also provided, but only for retail trade.

  • Durable Goods

The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.

Also notable in this report is the narrow category of nondefense capital goods. These goods mirror the GDP category producers’ durable equipment (PDE) — the largest component of business investment. Shipments of nondefense capital goods are a good proxy for PDE in the current quarter, while nondefense capital goods orders provide an indication of PDE growth in the quarters ahead.

INTERPRETATIONS

1. What the unemployment rate is in the economy as a percentage of the overall workforce. This is an important part of the report as the amount of people out of work is a good indication of the overall health of the economy, and this is a number that is watched by the Fed as when it becomes too low (generally anything below 5%) inflation is expected to start to creep up as businesses have to pay up to hire good workers and increase prices as a result.

2. What sectors the increase or decrease in jobs came from. This can give traders a heads up on which sectors of the economy may be primed for growth as companies in those sectors such as housing add jobs.

3. Average hourly earnings. This is an important component because if the same amount of people are employed but are earning more or less money for that work, this has basically the same effect as if people had been added or subtracted from the labor force

4. Revisions of previous nonfarm payrolls releases. An important component of the report which can move markets as traders re-price growth expectations based on the revision to the previous number.

Interpretation for the Financial Markets

While the overall number of jobs added or lost in the economy is obviously an important current indicator of what the economic situation is, the report also includes several other pieces of data that can move financial markets:

There are also several meetings that can affect markets just as much as any report, such as the FOMC and Humphrey Hawkins Hearings.

ANA aka IDKIT

Ag Moderator

2 thoughts on “Impact of Weekly Economic News Releases”

  1. Economic news release for Tuesday:

    Tuesday:

    10:00 Construction Spending Jul -0.4% -0.4%
    10:00 ISM Index Aug 49.5 50.0

    The Institute for Supply Management said that the nation’s manufacturing activity fell to 49.9 in August from 50 in July. Any reading below 50 represents contraction.

    The trend is projected to remain weak and global demand is beginning to soften.

    Food manufacturers continue to struggle with inflation and auto sales are the weakest in 16-years meaning that auto manufacturing will also suffer.

    Effect on ES:
    ES moved south from 1295 to low of 1287 within 1 hour of news at 10ET, and continued lower to close at 1276.

    ANA aka IDKIT
    Ag Moderator

  2. Robert Shiller, chief economist of Macromarkets, Co-developer of S&P/Case-Shiller home price indexes and Yale professor has released a new book ‘Shiller’s subprime solution’. In it, he says that home price declines, are already approaching those in the Great Depression when they were down close to 30%. According to his data, the real price of homes is down 24% when adjusted for inflation. Another fact is that there are close to 10 million homeowners whose debt is higher than their home values. The number is likely to grow as home prices continue to fall. He also states that most homeowners believe that prices will increase in a ‘V shape’. According to him, this is false because recoveries will take many years.

    By idkit on Sep 5, 2008 | Edit

Leave a Reply

Your email address will not be published. Required fields are marked *