Top Economic Indicators Traders Should Focus On – Introduction
Every day, the biggest challenge we go through is finding the best financial assets to buy or sell at the right price. This is mostly because as we make the decisions, millions of other people from around the world are doing the same as well. Also, there are many reasons why financial assets move up and down. Therefore, we turn to technical indicators which help us make better decisions. We also turn to fundamental analysis, which help us to make decisions based on the underlying economy. Here are the most important economic indicators that you must always focus on when making trading decisions.
Politics are very important because it is politicians who are tasked with making major fiscal decisions. They make decisions on government spending and many other issues. Therefore, when there is an election, traders should always pay close attention. In addition, when a major politician makes a major decision, traders should listen. For example, when Trump says he will exit NAFTA, traders should listen because the president has the powers to exit such trade agreements.
Every month, major economies release the employment numbers. These numbers show whether the economy is adding or subtracting jobs. An economy that is doing well is one that is adding jobs and one where wages are growing. Therefore, as a trader, you should watch out for the employment numbers and pay a closer attention to the wage growth.
Inflation refers to the increase in price of consumer prices. Central banks are tasked with protecting the consumers from increasing prices, especially when their wages are not growing. Every month, countries released the Consumer Price Index (CPI) and other inflation measures like PPI. As a trader, you should always look at these numbers and interpret them well. For example, a high rate of inflation will lead to a more aggressive pace of interest rate hikes while a slowing economy will lead to reduced chances of rate hikes.
Most economic indicators tend to focus on the interest rates. In this, when all the data is released, investors interpret them in regards to the future of rate hikes. Central banks meet every month to make the decision on whether to hike or lower interest rates. Higher interest rates favor the underlying currency.
Manufacturing and Service PMI
The PMI data is released mostly by HIS Markit, a company that provides data to companies. To collect the PMI numbers, the company conducts a survey on major stakeholders in the manufacturing and services industries. As such, a positive reading on manufacturing and services show optimism in the economy while declining numbers are not favorable.
The Gross Domestic Product is a very important number because it shows the growth or slowdown of an economy. A country whose economy is growing means that more people are working and wages are growing as well. Therefore, its currency is likely to do better than one that is not growing.
Housing plays a major role in all countries. This is because most people consider a home as the most important thing. Falling housing prices could mean that the demand is slowing, which makes it bad for the country. On the other hand, rising housing prices could mean that there is demand which is an indicator of a better economy.