Content Source: Public Accounts Classroom
If you follow the investment news, you will receive reminders about the release of some economic data every morning, but you don't know what you do with this information. How much do you know about these economic indicators?
In fact, no matter whether you use technical trading or fundamental trading, it is difficult to do well without a certain understanding of these economic indicators.
Market price is the embodiment of economic changes. Economic data has a certain effect on market price prediction. At the same time, the announcement of economic indicators will also affect price fluctuations.
Therefore, today we will classify and introduce various economic indicators.
We use economic indicators to predict economic movements, just as we use different viewpoints of a car to predict the direction of the vehicle behind. The observation points of a car include the windshield, side windows and rearview mirror, and the corresponding economic indicators can be divided into leading indicators, simultaneous indicators and lagging indicators.
Next, we interpret various economic indicators according to this dimension.
leading indicator
Different from the leading indicators in the technical aspect, the economic leading indicators here can indeed predict the future market conditions in advance, but there is a disadvantage that the leading indicators are not necessarily accurate, so you cannot completely rely on a certain indicator for trading judgment.
Some important leading indicators are:
1. The total number of housing starts
That is, the number of new homes being built is a leading indicator of economic conditions. Usually reported on an annual basis, total housing starts are annualized, and new housing starts are counted each month.
Investors will make predictions about this, and if the actual report is better than expected, it will be bullish on the economy, while a decrease in the total number of new housing starts will cause investors to worry about the economy. Also note that the total number of new housing starts is a cyclical indicator, and summer data is better than winter.
2. Central Bank Policy
This is the focus of investors' attention. The actions of the central bank can directly lead to changes in the investment market, so it is naturally an important leading indicator. The central bank of each country will hold regular monetary policy-related meetings and adopt certain policies to maintain stable economic development.
Therefore, investors can also follow the policies of the central bank. If the central bank adopts quantitative easing or interest rate cut policies, it means that economic development will be further stimulated. If the central bank adopts a policy of raising interest rates, it means that the current economic situation is good, inflation is strengthening, and the future economy will be restrained to a certain extent.
3. Money supply
When the money supply increases, it can promote consumption and investment, so it is conducive to economic development. A reduction in the money supply will inhibit economic growth.
4. Consumer Confidence Index
This indicator is easy to understand. When consumers' confidence in the economy increases, they will be more willing to consume, which is conducive to economic development. Investors typically refer to the Conference Board consumer confidence index.
5. Stock index
Even if you don't speculate in stocks, you can use stock indexes to predict the economy. When the growth of stock indexes is better than expected, investors think that the economy is performing better.
synchronization indicator
Synchronous indicators are more synchronized with the current economic situation and can track the current economic situation in real time.
Some important sync metrics:
1. Retail sales
Retail sales are the total consumption of consumers at the first level, usually released in the form of monthly reports, which can reflect monthly consumption expenditures. If retail sales fail to meet market expectations, we are not optimistic about the market.
2. Gross domestic product and gross national product
Gross domestic product (GDP) is used to measure the economic development of a country. The GDP report covers a wide range of content and generally has little impact on the investment market.
Gross National Product (GNP), similar to GDP, can measure a country's economic development excluding foreign investment, and has little impact on investment.
3. Consumer Price Index
That is, CPI can measure changes in retail commodity prices and reflect inflation. The CPI report shows that the increase in inflation will lead to a rise in interest rates, which is not optimistic about the investment market. The CPI report shows that lower inflation will lead to lower interest rates, which is optimistic about the investment market.
4. Producer Price Index
That is, PPI is somewhat similar to CPI, but PPI measures the change in the production cost of goods. The PPI report is usually released one working day after the CPI report, and has relatively little impact on the investment market.
lagging indicator
Leading indicators can be used to predict economic development, and lagging indicators are not useless and can be used to verify that economic conditions have changed.
Here are some important lagging indicators:
1. Unemployment rate
The unemployment rate is an indicator we often see in economic calendars as part of labor market reports. Usually calculated on a monthly basis. When the unemployment rate is higher than expected, the market is bearish on economic development, and when the unemployment rate is lower than expected, the market is bullish on economic development.
2. Non-agricultural employment
This is also an indicator related to the labor market report. Non-farm payrolls are released by the US Bureau of Labor Statistics, which counts the change in employment in the previous month.
When the number of non-agricultural employment is higher or lower than expected, it can also cause greater volatility in the investment market. Higher than expected is good for the investment market, and lower than expected is bad for the investment market.
The above is today’s sharing. In fact, no matter whether you invest or not, understanding these indicators that can reflect economic changes can also increase your financial knowledge. Of course, knowing which data indicators have a greater impact on investment can also improve your ability to predict transactions.
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