Economic indicators
GDP (Gross Domestic Product) – measures summary value of goods and services generated in a relevant country. All economic activity is taken into consideration while calculating the index, regardless of nationality of the owner of any given production factor. The level of GDP can be calculated in actual prices, asserting actual market production value, as well as in static prices, allowing estimation of the dynamics in the economic growth rate.
Financial markets analyze carefully changes in GDP published each quarter. Higher then expected economic growth rate can contribute to strengthening the local currency on the international market.
CPI (Consumer Price Index) – reflects the price of consumer goods adjusted by seasonal factor. Investors tend to avoid currencies with increasing inflation. The rise of the CPI index leads to an increase in interest rates, that results in a lowering of bond prices, nominated in a given currency. Panic amongst foreign investors selling the bonds with the perspective of an interest rate rise may result in increased supply and weakening of the currency.
PPI (Production Price Index) – the dynamics of changes in the prices of goods offered by farmers and manufacturers. Financial markets follow changes in final goods prices, published monthly. As a result of seasonal food prices and high instability of energy prices the PPI index may be subjected to frequent revisions. Large increase in PPI together with high inflation expectations can negatively affect market sentiment towards the currency.
Industrial Production – specifies momentum of aggregated growth of the physical level of economic production. High dynamics of the indicator signifies the good condition of an economy and can positively influence the sentiment towards the local currency. Low dynamics of industrial production reflects an unhealthy condition in the local economy.
Trade balance – compares the value of exported and imported goods and services. The difference between the value of export and import for the given country represents the trade balance. Its positive value - advantage of export over import illustrates the status of economic capacity of a country. High competitiveness of economy can interest investors in local currency.
ISM – index takes into account five factors: new orders, production, deliveries, stockpiles and employment. A value greater then 50% indicates the development of production and the whole economy. Reading 45%-50% indicates stagnation of industrial production, and an index value below 40% signifies stagnation in production and the entire economy.
Financial markets place great importance in ISM on account of its decisive influence on Federal Reserve’s monetary policy.
Current Account – includes all capital flow in and out of the country. Positive current account balance indicates that capital is flowing into the country, which may strengthen the demand for the local currency.
Unemployment rate – the level of unemployment is one of the most important indicators representing the condition of the economy. The published level of unemployment includes natural - voluntary unemployment as well as real unemployment – resulting from unsuitable qualifications of the workforce to the market requirement, lack of demand.. The steady rise in unemployment indicates an aggravation in the economic situation of the country, and negatively impacts financial markets, leading to a weakening of the given currency.
University of Michigan Consumer Sentiment Index – published monthly, represents an important indicator of consumers’ sentiment and perspective of future economic growth in the USA. Its value is influenced by the assessment of the current situation and anticipation of the future economic condition. The survey is carried out by phone among 700 households. Consumer expenditures represent one of the most significant factors, having an impact on the level of Gross Domestic Product. Positive Index data - surpassing expectations of the market - may influence the demand for the US dollar.
IFO Business Sentiment – developed by Munich Institute of Economics represents sentiment of German industrial entrepreneurs. The survey is carried out among 7000 business entities. Financial market analysts regard the Index as an important indicator for the state of the economy in the whole Euro zone. Growing IFO Index may signify a healthy economic condition and stimulate the rise of the euro.
Durable Goods Orders – measures the value of orders for durable goods (amortization above 3 years). The Index is fairly volatile and subject to frequent revisions; nevertheless the publications can have a considerable impact on financial markets, resulting in significant currency price changes.
New Home Sales - stands for the number of houses sold and for sale. Changes in dynamics represent the condition of the American real estate market. High dynamics is characteristic for a boom period, while low dynamics indicates a potential stagnation of the economy.
Housing Starts and Building Permits – published monthly, represents relative increment in building investments and building permits on the US real estate market. The Index is influenced by the level of mortgage interest rates. Prosperity in the real estate market characterizes a boom economy.
Conference Board Consumer Confidence – similar to the Michigan Index. As the sentiment of consumers reflects the state of the economy – optimism during a boom period, pessimism during a recession. Good sentiments of American consumers signify higher demand, higher business sector income and a potential demand for the US dollar.
Non-farm Payrolls – reflects the condition of the US economy. Ongoing increases in employment represents improvement of the economic climate, a boost in household income and in long-term value of enterprises. High Index values may result in increased demand for the US dollar.