Week Ahead: Economic Indicators (EU)
Hey, Traders!
For the June 24th week, here is a list of all of the major economic indicators being released during the EU Session, with a brief synopsis of what they represent and what to possibly expect from the markets in reaction.
Monday 24th June
04:00 ET
German IFO
Expectations
German Business Expectations rates the expectations of businesses in Germany for the following six months. It is a sub-index of the German Ifo Business Climate Index.
Current Conditions
The German Current Assessment rates current business conditions in Germany, without considering future expectations. It is a sub-index of the German Ifo Business Climate Index.
Business Climate
The German Ifo Business Climate Index rates the current German business climate and measures expectations for the next six months. It is a composite index based on a survey of manufacturers, builders, wholesalers and retailers. The index is compiled by the IFO Institute for Economic Research.
What to expect:
A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.
Friday 28th June
02:00 ET
UK GDP
Gross Domestic Product (GDP) measures the total value of a country’s industrial output over a given period. It consists of the aggregate domestic production of goods and services by individuals, businesses, and government. Quarterly publications provide a much more detailed picture of the economy than the monthly indicators, covering all of gross domestic product (GDP), sector accounts, business investment, balance of payments, consumer trends, and profitability of UK companies.
Low levels of growth are negative to most asset classes and are common to recessionary cycles. The Bank of England (BOE) places a great deal of emphasis on monthly and yearly GDP. Robust growth is often a prelude to monetary tightening, while stagnate levels provide an environment conducive to Quantitative Easing (QE).Traders monitor GDP releases closely.
What to expect:
Abnormal reports may cause rapid buying or selling of the U.K. indices or GBP. Currency, equities, and commodities markets all exhibit enhanced degrees of volatility surrounding the GDP release.
A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.
02:45 ET
French CPI
The consumer price index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat’s harmonized measure of consumer prices. A flash estimate was released for the first time in January 2016 and is now published towards the end of each reference month.
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries where monetary policy decisions rest on the central bank’s inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. As a member of the European Monetary Union, France’s interest rates are set by the European Central Bank.
What to expect:
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
03:55 ET
German Unemployment Rate
The unemployment rate is calculated by the Federal Employment Agency based on the number of unemployed persons as a percentage of the number of all civilian members of the labour force (dependant civilian employed persons, the self-employed family workers and unemployed). Unemployed is defined as persons between the ages of 15 and 65 and who are without employment or only with short-time employment (currently less than 15 hours per week) and seeking employment of at least 15 hours per week subject to compulsory insurance.
A snag to understanding German unemployment data comes from the fact that there are several measures of unemployment available. Unemployment rates calculated by the Bundesbank are preferred but some German analysts check the unadjusted rates as well. And then there are still different rates for unemployment that are used by Eurostat to compute their unemployment rate. The spread between the Bundesbank rates and Eurostat can be quite significant. The reason for the often sizable differential is found in the interpretation of the ILO definition.
What to expect:
Unlike in the U.S. no wage data are included in this report. But by tracking the jobs data, investors can sense the degree of tightness in the job market. If labor markets are tight, investors will be alert to possible inflationary pressures that could exist. If wage inflation threatens, it’s a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline – boosting up bond and stock prices in the process.
03:55 ET
German Unemployment Change
The Unemployment Change released by the Bundesagentur für Arbeit and published by the German Statistics Office is a measure of the absolute change in the number of unemployed people in Germany using seasonally adjusted data.
What to expect:
A rise in this indicator has negative implications for consumer spending, as there’s less people working and therefore diminishes economic growth in the country. Generally, a reading above expected is seen as negative (or bearish) for the EUR, while a low reading is seen as positive (or bullish).
