Investors should pay attention not only to the fundamental indicators of companies, but also on the economic situation.
The situation in the economy affects both the income of enterprises, and on the dynamics of financial markets.
To assess the economy, there are statistics calendars.
The dynamics of macroscopic indicators will make it possible to assess the broad picture - for an average- and long-term investments.
Short-term traders can be helped by assessing deviations of indicators from consensus (Average)-analysts' forecast. In case of "surprises" (sharp deviations from consensus) local sharp movements in financial markets are possible. This is especially true in the case of a sharp slowdown in the economy or its recovery from the crisis..
Tracking US macro performance is especially important for assessing the broader market., China, European Union and Germany.
GDP
Gross Domestic Product is the overall measure of production in a country. GDP is an indicator, which has the most to say about the health of the economy. The indicator shows the market value of all goods and services, produced in the economy for the reporting period. It includes personal consumption, government purchases, private stocks and other indicators. Published by quarter only and presented on an annualized basis as a percentage. GDP is an extremely comprehensive and detailed report.
Despite, that quarterly figures can be volatile, the long-term trend of GDP growth is the most decisive information on the situation in the economy. The general consensus is: US GDP growth should be 2,5-3,5% in year. This is enough for that, to make corporations profit, and jobs increased.
Read more: "U.S. GDP as an indicator of the health of the American economy. How data can affect the market "
SMEs
PMI - Purchasing Managers' Indexes (Purchasing Managers' Indices). They are formed as a result of surveys.
There are several types of PMI. Indexes from ISM were the first, US Institute for Supply Management. There are two types of ISM indices - in industry and services.
Indices from IHS Markit appeared later. The methodology for their calculation and interpretation is similar to the indicators from ISM. Markit indices are calculated in more than 40 countries, which account for about 85% world GDP. Indicators are published twice a month. A preliminary version is released in the middle of the reporting period, at the end of the month (at the beginning of the next) the final version is published. Highlight Manufacturing PMI, service segment and composite indices. In the US, indicators from ISM are more significant, seemingly, due to longer history.
index values are generally interpreted as follows:
• Above 50 - production and economy are booming.
• Below 50, but higher 45 - production is declining, but the economy as a whole continues to grow.
• Above 60 during 3-6 months amid a rapidly developing economy and low unemployment may push the central bank (FED in USA, Eurozone composite indices are important for the ECB) to raise interest rates.
• Below 45 for a long period of time - most likely, production and economy are in decline. The likelihood of, that the central bank will resort to lowering interest rates or other measures, to stimulate economic growth.
• Below 42 over an extended period of time may be a sign of an impending recession
Labor market
The labor market is one of two key indicators, which the Fed is guided by in the decision-making process.
At the beginning of each month, an official BLS Employment and Unemployment Report is published in the United States.. This is the key macro release of the month..
A data block consists of several components. Main:
• Number of jobs, created in the non-agricultural sector (non-farm payrolls) - the most important indicator. Includes full-time, part-time and private, and public sectors. Formed on the basis of a survey of enterprises.
• Number of jobs, created in the private sector.
• Unemployment rate - the number of unemployed as a percentage of the total labor force. Formed on the basis of a survey of households. The lower the indicator, the better the state of the economy. However, in the post-recession period in the United States, the situation was observed for a long time., when desperate citizens stop looking for work, therefore are no longer considered unemployed and leave the workforce.
• Underemployment rate - the percentage of unemployed, uniting not only those who actually do not work, but also persons, dissatisfied with their place of work, but unable to find another because of the state of the economy.
• Average hourly wage rate. Interesting is its percentage change. The higher it is, the more significant consumer demand, as well as inflation.
Inflation
It's about price dynamics, which can be measured relative to the previous month (m / m) or relative to the same period last year (y / y).
Inflation is commonly understood as a steady rise in prices.. It makes more sense to look at year-to-year changes. Inflation in the normal sense implies a moderate increase in prices: 2-4% for the USA and even 4-6% per annum (in the case of Russia), but not 50% or something like that.
Consumer Price Index (Consumer Price Index, CPI) - the most famous and intuitive indicator, reflects the change in the average price level of a fixed consumer basket of goods and services (more 80 thousand. objects). Basic version of the index (Core CPI) cleared of such volatile components, as the cost of food and energy and allows you to smooth out various fluctuations, including seasonal.
Consumer spending price index (PCE Price Index), or rather, its percentage change is an inflation indicator, which takes the FRS into account when making decisions on monetary policy. The long-term target of the Federal Reserve is at the level of 2% on an annualized basis, and strong deviations are cause for some concern. Average inflation PCE (on an annualized basis), usually, on 0,3% below the dynamics of the Consumer Price Index (CPI), what is related to the calculation methodology (CPI does not take into account the effect of substitution of some products for others).
Producer Price Index (Producer Price Index, PPI) - measures the dynamics of goods at the producer level, not retail outlets. At this stage of the chain, inflationary shifts are diagnosed faster.. Ideally, inflationary trends at the PPI level with a time lag of 2-4 months are reflected in the CPI dynamics. We have a leading indicator, albeit somewhat secondary in nature.
The dynamics of wages demonstrates well the change in consumer demand. The flip side of wage growth is a decrease in the margins of manufacturers of goods and services (reduced profitability of sales).
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