Skip to main content




economic data 




we know how to use an economic calendar (which should be checked daily), what are the market movers that usually generate the most volatility and, in some cases, opportunities?
a) Central Bank Meetings: it is not a wise thing to trade around a central bank meeting. But central bank meetings can set the tone for the days ahead, which can be traded on the back of the theme (if there is one). Central banks set the price of money by controlling the short term lending rate. Generally speaking, when a central bank increases interest rates it attracts capital to the country because investments will yield more. This is all positive for the domestic currency. The opposite is also true: if a central bank decreases interest rates, then it is negative for the domestic currency.
But even more important than the interest rates themselves is the general direction of interest rates. If a central bank is pointing at rising rates, then the market will already be in “buy the dip mode”. Another important factor, in this day and age, is the amount of alternative accommodative policies (like Quantitative Easing in its various forms), which increase the money supply and thus are negative for the domestic currency.
b) Central Bank Minutes: it is generally not wise to trade around the minutes of a central bank meeting, although these can provide valuable details as to the central bank's members' true policy direction and preferences. The minutes can confirm or contradict the actual decision taken previously.
c) Employment Reports: it is generally not wise to trade right before employment reports and definitely not around NFP. Employment reports are important because jobs create income which turns into spending and thus into GDP growth. The monthly US NFP report is the most volatile news release in the FX markets. In Europe, the most highly watched is the German jobs report.
d) PMI & ISM: The Purchasing Managers Index and the Institute of Supply Management survey the corporate purchasing managers in the economy and therefore provide a good “feeling” of the strength/weakness of the economy. In addition to watching the composite number (above or below 50), the sub-components can be used to gauge the strength/weakness of any sub-sector like jobs, orders, warehouse stocks, etc. These data prints can lead to tradable market reactions.
e) Retail Sales: yet another important data print. Consumption spending makes up to 70% of the GDP and therefore consumer demand is fundamental for the health of the economy. The general trend in retail sales can often be more important than the headline number, because of cyclical factors (Christmas, Easter, Weather, etc). Retail Sales can lead to tradable market reactions.
f) Consumer Confidence/Economic Confidence surveys: The volatility is usually much lower than other releases. Confidence reports are a “sentiment” indicator built by economists. After all, without confidence there is no spending or investing, and there is no growth. In export driven economies like Japan, Canada and Germany, these reports are watched closely. These data prints can lead to tradable market reactions
g) Consumer Price Index (CPI): Controlling inflation is generally the prime objective of the central banks. Therefore, inflation data is directly connected to monetary policy. Higher inflation generally pushes the domestic currency higher, on the back of the expectation of rising interest rates. The opposite is also true: softer inflation data is generally negative for the domestic currency, as the central bank might have to lower rates. These data prints can lead to tradable market reactions.

Comments

Post a Comment

Popular posts from this blog

Axis Bank to sell 9% to Bain Capital, others to raise Rs 11,625 crore

The board of Axis Bank on Friday approved stake sale to private equity player Bain Capital and other investors in its bid to raise capital by issue of equity linked securities on a preferential basis. The board of Axis Bank on Friday approved a 9 percent stake sale to Bain Capital and other investors including LIC in its bid to raise capital worth Rs 11,626 crore by issue of equity of equity linked securities on a preferential basis. The issue price of equity Shares at Rs 525 per share while the issue price of convertible warrants is Rs 565 per share. Entities affiliated with Bain Capital propose to invest Rs. 6,854 crore while LIC or Life Insurance Corporation will be issued around 3.02 crore equity shares on a preferential basis to help the bank raise over Rs 1,583 crore, the bank said. Approved by the Board today, Axis Bank proposes to raise Rs 9,063 crore through issuance of equity and the remaining Rs 2,563 crore through issue of warrants. The capital raise ...
Post a Comment
Read more
THE NIFTY FUTURE  Basics of the Index Futures Within the Indian derivatives world, the Nifty Futures has a very special place. The ‘Nifty Futures’ is the most widely traded futures instrument, thus making it the most liquid contract in the Indian derivative markets. In fact you may be surprised to know that Nifty Futures is easily one of the top 10 index futures contracts traded in the world. Once you get comfortable with futures trading I would imagine, like many of us you too would be actively trading the Nifty Futures. For this reason, it would make sense to understand Nifty futures thoroughly. As we know the futures instrument is a derivative contract that derives its value from an underlying asset. In the context of Nifty futures, the underlying is the Index itself. Hence the Nifty Futures derives its value from the Nifty Index. This means if the value of Nifty Index goes up, then the value of Nifty futures also goes up. Likewise if the value of Nifty Index decl...
Post a Comment
Read more

OPTION TRADING

A Special Agreement There are two types of options – The Call option and the Put option. You can be a buyer or seller of these options. Based on what you choose to do, the P&L profile changes. Of course we will get into the P&L profile at a much later stage. For now, let us understand what “The Call Option” means. In fact the best way to understand the call option is to first deal with a tangible real world example, once we understand this example we will extrapolate the same to stock markets. So let’s get started. Consider this situation; there are two good friends, Ajay and Venu. Ajay is actively evaluating an opportunity to buy 1 acre of land that Venu owns. The land is valued at Rs.500,000/-. Ajay has been informed that in the next 6 months, a new highway project is likely to be sanctioned near the land that Venu owns. If the highway indeed comes up, the valuation of the land is bound to increase and therefore Ajay would benefit from the investment he would mak...
Post a Comment
Read more