Week Ahead: Economic Indicators (EU)
Hey, Traders!
For the May 20th 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.
Wednesday 22nd May
02:00 ET
UK CPI
The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of 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. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. 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 business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets – and your investments.
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.
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.
Thursday 23rd May
03:15 – 04:30 ET
Euro-Area PMI
Services:
The Eurozone Services PMI (Purchasing Managers’ Index) is based on data collected from a representative panel of around 2,000 private service sector firms. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The index tracks variables such as sales, employment, inventories and prices.
Manufacturing:
In the Euro Area, the Markit Manufacturing Purchasing Managers’ Index measures the performance of the manufacturing sector and is derived from a survey of 3,000 manufacturing firms. National data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 90% of Eurozone manufacturing activity. The Manufacturing Purchasing Managers Index is based on five individual indexes with the following weights: New Orders (30 percent), Output (25 percent), Employment (20 percent), Suppliers’ Delivery Times (15 percent) and Stock of Items Purchased (10 percent), with the Delivery Times index inverted so that it moves in a comparable direction.
Composite:
In the Euro Area, the Markit Eurozone PMI Composite Output Index tracks business trends across both the manufacturing and service sectors, based on data collected from a representative panel of over 5,000 companies (60 percent from the manufacturing sector and 40 percent from the services sector). The index tracks variables such as sales, new orders, employment, inventories and prices. National data are included for Germany, France, Italy, Spain, Austria, the Netherlands, Greece and the Republic of Ireland.
What to expect:
A reading above 50 indicates an expansion of the sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.
Friday 24th May
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.
What to expect:
Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps apparel sales are showing exceptional weakness but electronics sales are soaring. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company’s quarterly or annual report.
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.
German GDP
Gross Domestic Product (GDP) is the broadest measure of economic activity and is a key indicator of economic health. The quarterly percent changes in GDP show the growth rate of the economy as a whole.
What to expect:
Robust economic activity can firm up interest rates, which increases the demand for the Euro. If inflation accelerates and stays high, it can lower Germany’s’ competitiveness in the world and worsen trade. A healthy economy generates more business earnings, whiles a sluggish business environment depresses sales and income. However, higher prices will erode household purchasing power and may force interest rates to go higher. If the economy is growing at or below the pace projected by economists, the bond market is likely to react positively. If GDP figures exceed expectations, and inflation pressures are rising, interest rates may be raised, meaning bond prices will lower, and yields will rise.
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.
