Tool for fundamental analysis
The economic calendar tool helps traders to keep track on different events and to mark the most important one of them.
These events very often reflect on the assets’ price movements (up or down) and traders could profit by predicting the movements.
In this review we will take for example Bloomberg economic calendar as it is among the best in our opinion. Their tool is available web based and on a mobile app. The calendar shows event release dates and event definitions. The event definitions are divided in a Market moving indicator, Merit extra attention, Other key indicator and Treasury events. We will take a close look on the Market moving indicator which interests most of the binary options traders.
Market Moving Indicator
Chairman Press Conference
The Fed Chairman holds press briefings four times a year to explain the FOMC’s latest quarterly economic projections. Traders are interested in these statements and economic projections because they can move the financial markets. Public in general and investors can learn more about FOMC views on the direction of the economy, including real growth, inflation, and unemployment.
There are two opportunities for the Fed to move markets, first at 12:30 p.m. ET when the statement is released and second at 2:15 p.m. ET when the Fed chairman starts his press conference.
Consumer Price Index
The CPI is a measure of the change in the average price level of a fixed amount of goods. CPI is a very important indicator as the monthly changes in CPI represent the rate of inflation. For example in 2012 with $100 you can buy certain amount of goods but in 2013 you may need more money for the same amount of goods. According to CPI reports the prices rose 4.2% in the USA over 2007.
Investors and traders are interested to closely follow the CPI report on the economic calendar tool because is one of the major monthly indicators of inflation. Traders can benefit a lot if they understand how the inflation influences the financial markets.
Durable Goods Orders
Durable goods orders reflect the new orders placed with companies for delivery of factory hard goods. There is an advanced report which provides information about early estimate of durable goods orders and after two weeks another more complete and revised report.
Investors and traders are interested in this data on the economic calendar tool because it provides insight into the demand for items such as cars or business investments such as electrical machinery and computers. And here is the conclusion: when companies are spending more on equipment, they are obviously experiencing sustainable growth.
The employment situation is a set of labor market indicators. The unemployment rate equals the number of unemployed persons divided by the total number of persons in the labor force. The establishment survey provides additional indicators like nonfarm payroll employment.
This is the most powerful economic report that can move the markets, so traders should pay attention when is released. The employment data is the best way to gauge the current state as well as the future direction of the economy. The jobs data also provide insight on wage trends and wage inflation.
Traders should know if wage inflation threatens, most probably interest rates will rise, bond and stock prices will fall. Conversely when job growth is slow interest rates are most likely to decrease and stock prices to increase.
Existing Home Sales
The Existing home sales indicator is calculating all closed sales on previously constructed homes and condominiums. Investors and traders follow this report because it provides a gauge of the country’s economy. Usually people have to be very confident in their own financial position to buy a new house. This data has big effect through the economy and therefore across the markets. Since the economy has big influence on the financial markets, home sales have a directly affect the price on stocks and commodities.
The Gross domestic product is a major indicator which tells a lot about country’s economy and can have a huge influence on the financial markets. GDP is the market value of the country’s production in a given period of time.
GDP = private consumption + gross investment + government spending + (exports – imports). Experienced traders and investors monitor the real growth rates generated by the GDP quantity index or real currency value. Traders care about GDP rates because is the all-inclusive measure of economic activity. By tracking country’s GDP reports traders will understand what the economic backdrop is for these financial markets.
This economic data can be very useful when you trade currency pairs as it has direct influence on the currency value. The GDP report also shows investors important trends within the big picture.
The Housing starts indicator gives information about the number of construction of new buildings. Such data may look not so important for some investors but actually but actually has a powerful multiplier effect through the economy and respectively on the markets.
Building investors usually don’t start a construction of a building unless they are confident it will sell upon or before its completion. Housing starts indicator is connected to Existing home sales indicator which tells traders how people feel about buying a home. If more people are willing to buy a new house or apartment than and more builders will invest in starting new projects for buildings.
Changes in the Housing starts rate shows traders a lot about demand for homes and the prospect for the construction industry. Moreover, when a construction of new building is started, the construction employment increases, and income will be pumped back into the economy.
The index of industrial production and the related capacity indexes cover manufacturing, mining, and electric and gas utilities. The production index measures real output and the capacity index as an estimate of sustainable potential output.
Both are expressed as a percentage of actual output in a given period. Traders follow the index of industrial production because it tells how much factories, mines and utilities are producing.
The manufacturing sector is responsible for less than 20% of the economy but the industrial production report has huge influence on the markets. This detailed report on the calendar tool shows traders which sectors of the economy are performing better than others.
The International trade indicator reports merchandise and services, it is available by export, import and trade balance. Traders are interested to follow this report on the calendar because it shows economic trends. Changes in the level of imports and exports, along with the trade balance (the difference between imports and exports) can show traders the economic trends.
Imports indicate demand for foreign goods and exports indicate demand for local goods. The countries’ currencies can be particularly sensitive to change in the chronic trade deficit.
The Jobless claims indicator shows the number of persons who requested unemployment insurance for the first time. It is easy to understand that an increasing trend leads to a deteriorating labor market. On the other side when fewer people filing for unemployment insurance means more people have jobs.
That is what traders care about because it tells a lot about the economic situation. How you know every job comes with a certain income which increase the spending power and boost the economy. More spending keeps the economy growing, so more people working generates a healthier economy.
It is also possible that number of job seekers is so low that businesses can’t find new workers. This makes companies to offer higher wages to lure people from other jobs. This leads to wage inflation. If wage inflation threatens traders can easy predict that interest rates will rise and stocks will fall.
Producer Price Index
The PPI is a complexity of indexes that measure the average change in the prices received by domestic producers. The Producer price index measures goods and services price change from the perspective of the seller.
Investors are interested in the PPI numbers because tracking price pressures in the pipeline they can anticipate inflationary consequences. The Producer price index is considered a precursor of consumer price inflation and profits. If the prices paid to manufacturers increase, companies also have to increase product prices or to take a cut in profits.
Traders should know that commodity prices react more quickly to supply and demand, food and energy prices are major sources of volatility.
Personal Income and Outlays
Personal Income and Outlays indicator represents the amount of income that households receive from all sources like salaries and fringe benefits. Personal outlays represent personal consumption expenditures, personal interest payments and transfer payments.
These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report. Traders and Investors use the income and outlays data to gauge the strength of the consumer sector in the economy. More income means more spending and more saving, savings are often invested in the financial markets and can increase the stocks prices.
The consumption is more than two-thirds of the economy, so if traders follow on the calendar tool what consumers are up to, they will have a good knowledge on the economy activity.
FOMC Meeting Announcement
The Federal Open Market Committee determines short-term interest rates in the USA when it decides the overnight rate that banks pay for borrowing reserves. Every six weeks on the FOMC meetings the Fed determines interest rate policy and these decisions are the most influential events for the markets.
Usually market participants speculate about what will be the interest rate change and if the result is different from the expectations then the impact on the financial markets can be dramatic.
Traders are interested in these announcements because the level of interest rates affects the economy. If interest rates are high than the economic activity is slow conversely lower interest rates stimulate the economy.
Fundamental analysis is based on following close economic and political events which affect the markets. Due to the fact that the information is usually accompanied with explanations, the economic calendar tool can be used successfully even by inexperienced traders. We recommend you first to test this tool with a demo account in a trusted broker.