Week Ahead: Economic Indicators (Europe)
Hey, Traders!
For the February 17th 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 17th February
05:00 ET
Eurozone Trade Balance
The trade balance measures the difference between a country’s exports and imports of goods. If a country sells more goods to other countries than it buys, it has a trade surplus. If it buys more goods than it sells, it has a trade deficit. This balance is important because it shows how competitive a country is in global trade and affects jobs and industries at home.
Why Investors Care
Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the local currency dollar in the foreign exchange market.
Market Reaction
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. To note, market reactions to the data can be quite muted, unless there are significant changes, which could lead to a reaction.
Tuesday 18th February
02:00 ET
UK Unemployment Change
Change in the number of people claiming unemployment-related benefits during the previous month, released by the ONS (Office National Statistics). As the UK provides a lot of benefits to its population, requiring a lot of money, the more people that sign on, the money that will have to be pooled from the government’s budget to support people.
UK Unemployment Rate
The ILO (International Labour Organisation) Unemployment Rate released by the National Statistics is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator for the UK Economy. If the rate is up, it indicates a lack of expansion within the U.K. labor market.
Market Reaction
A rise leads to weaken the U.K. economy. Generally, a decrease of the figure is positive (or bullish) for the GBP, while an increase is negative.
UK Employment Change
Change in the number of employed people. Data represents the 3-month moving average compared to the same period a year earlier.
UK Average Weekly Earnings Ex Bonus
The Average Earnings Index is an indicator of inflationary pressures emanating from the labour market. The effect of a higher or lower figure than expected can be both bullish or bearish.
UK Average Weekly Earnings
The Average Earnings Index measures change in the price businesses and the government pay for labor, including bonuses. The Average Earnings figure gives us a good indication of personal income growth during the given month.
Market Reaction
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 Inflation
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.
The consumer price index is the most widely followed indicator of inflation. 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.
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.
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.
05:00 ET
German ZEW Economic Sentiment
The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey. The ZEW is followed closely as a precursor and predictor of the Ifo Sentiment Survey and as such is followed closely by market participants. The data is released around the middle of the month for the current month. The survey provides a measure of analysts’ view of current economic conditions as well as a gauge of expectations about the coming six months. The latter measure tends to have the larger market impact and reflects the difference between the share of analysts that are optimistic and the share of analysts that are pessimistic. About 350 financial experts take part in the survey.
German ZEW Current Conditions
This survey summarizes the net percentage of positive and negative responses regarding the expectations for economic growth in the next 6 months, as given by financial analysts from banks, insurance companies and large industrial enterprises. For example, if 50% believe that the economic situation will improve and 20% believe it will get worse, the result will be +30.
Market Reaction
A reading that is stronger than forecast is generally supportive (bullish) for the Euro, while a weaker than forecast reading is generally negative (bearish) for the Euro.
Eurozone ZEW Survey Expectations
(ZEW) Economic Sentiment Index rates the relative six-month economic outlook for the euro zone. On the index, a level above zero indicates optimism, below indicates pessimism. It is a leading indicator of economic health. The reading is compiled from survey of about 350 German institutional investors and analysts.
Market Reaction
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.
Wednesday 19th February
02:00 ET
UK Inflation
The Consumer Price Index (CPI) is an average measure of the level of the prices of goods and services bought for consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union’s statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England’s target inflation measure.
The Consumer Price Index is the most widely followed indicator of inflation. In countries such as the UK, where monetary policy decisions rest on the central bank’s inflation target, the rate of inflation directly affects all interest rates charged to businesses and the consumer. Inflation is an increase in the overall price level of goods and services.
Inflation (along with various risks) explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates.
Market Reactions
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.
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.
UK PPI
The Producer Price Index (PPI) measures the prices of goods bought and sold by manufacturers. The input price index measure the prices of materials and fuels purchased by manufacturers for processing. These are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day running. The output price index captures prices charged by manufacturers as they pass through the factory gate and excludes any VAT or similar deductible tax. Both measures may be seen as leading indicators of consumer price index (CPI) inflation although the short-term correlation is only very weak.
Market Reaction
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
Friday 21st February
02:00 ET
UK Retail Sales
Retail sales measure the total receipts at stores that sell durable and nondurable goods. The data include all internet business whose primary function is retailing and also cover internet sales by other British retailers, such as online sales by supermarkets, department stores and catalogue companies.
Headline UK retail sales are reported in volume, not cash, terms but are available in both forms. The data are derived from a monthly survey of 5,000 businesses in Great Britain. The sample represents the whole retail sector and includes the 900 largest retailers and a representative panel of smaller businesses, including internet sales. Collectively, all of these businesses cover approximately 90% of the retail industry in terms of turnover.
Core Retail Sales
The Core number excludes Auto Fuel, which tend to be very volatile.
Why Investors Care?
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.
Market Reaction
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.
03:15 – 04:30 ET
Manufacturing PMI
The Manufacturing Purchasing Managers’ Index (PMI) measures the activity level of purchasing managers in the manufacturing sector. A reading above 50 indicates expansion in the sector; below 50 indicates contraction. Traders watch these surveys closely as purchasing managers usually have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.
Services PMI
The Services Purchasing Managers’ Index (PMI) provides an estimate of service sector business activity for the preceding month by using information obtained from a representative sector survey incorporating transport and communication, financial intermediation, business services, personal services, computing and IT and hotels and restaurants. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).
Composite PMI
The Composite PMI Index measures the activity level of purchasing managers in both sectors (manufacturing and services). A reading above 50 indicates expansion in the sector; a reading below 50 indicates contraction.
Market Reaction
A higher than expected reading should be taken as positive/bullish for a currency, while a lower than expected reading should be taken as negative/bearish for a currency.
