In trading it is essential to identify the most important market mover data to understand how to set up one’s strategies both in the short and long term.
In trading it is necessary to give weight to macroeconomic data of the moment, but above all it is essential to know identify which macro data are important in the current historical moment of the markets.
To understand what the most important macroeconomic data are, you need to have the rudiments of macroeconomic analysis, those basic notions that allow us to understand the context and the environment in which a trader must move in order to to avoid problems in managing their positions.
What does all this mean? Quite simply: macro data does not always have the same weight. On the contrary, sometimes some that were once relevant could turn out to be irrelevant and therefore not get to move the market. Before we understand what the relevant macro data is, we need to do a macro analysis and to do that we need training.
As we always point out, training is never too much in trading, on the contrary, the more we know the better, so that we can find and use the tools that could serve us the most for the purposes of our business. So let’s move on to a brief macroeconomic analysis to then understand which macroeconomic data are of current importance and which could be important in the future.
Macroeconomic analysis of the current situation
The current macroeconomic situation is quite clear. After the pandemic and after the outbreak of the war, we saw a situation in which inflation globally rose above the expected targets by the central banks, therefore it is precisely the latter that have to act in time to avoid problems on the control of the price trend in the long run.
To control inflation, the central banks use the instruments responsible for controlling monetary policy, all instruments linked to the liquidity present in the financial market and which follow a simple principle: a sharp increase in inflation and prices, follows a decrease in liquidity to decrease demand and consumption which would have direct consequences on inflation.
The same thing, but in reverse, happened when inflation failed to rise towards targets and, therefore, central banks implemented policies aimed at increase liquidity, which was to lead to an increase of demand and consequently to an increase in prices.
Returning to the current situation, at the moment we have inflation well above the ideal targets, therefore a restrictive economic policy is implemented. What are the repercussions of this policy on a global scale? A drop in liquidity leads to a smaller money inflow within the economic system, therefore there should be a decrease in loans, consumer credit, an increase in the cost of credit and a consequent decrease in demand, the main ingredient for a economic slowdown. The economy must be ready to cushion this slowdown well, on pain of a recession.
Precisely in this context the famous saying "cash is the king" comes out, i.e. liquidity is important and those who have more liquidity have the better chance of surviving in this context.
A recession is therefore predicted, or in any case an economic slowdown leading to a rise in the unemployment rate on a global scale which, once it reaches its peak, will sign the end of the slowdown and bring the central banks to stimulate the economy again in the event that a high unemployment rate also corresponds to a decrease in inflation below the forecast targets.
The most important macro data currently
In first place we obviously find inflation on a global scale and especially those of Western economies. We recall that for the most important central banks, such as the Fed (USA), the ECB (Europe), the BoE (UK), the inflation target is 2%. As long as it remains above this target, they will never implement expansionary-type policies, but only with unchanged or increasing interest rates.
Another market mover is that relating to interest rates of central banks, a figure closely linked to inflation and which helps the descent of the latter down to pre-set target levels. The more the inflation trend decreases at the forecasted rate, the more [interest rates remain unchanged or slightly increasing, the more inflation does not fall, the more central banks will be pushed to raise rates .
The current historical case sees falling inflation and a slowdown in the rate of growth of interest rates due to the downward trend of inflation. Another relevant market mover, which for the moment is gaining more and more weight, is that relating to the unemployment rate which acts as a spy as regards the resilience of the economy. If the unemployment rate starts to rise, it means that inflation is falling and it will be within the targets. Therefore, an increase in unemployment to all-time highs could act as a timing indicator for central banks to bring interest rates back and push the economy towards a future recovery under normal conditions.
There are also other indicators, albeit of lesser importance than the current situation but still closely linked to the state of health of the economy, such as some indicators of economic sentiment such as the Purchasing Managers Index (Pmi) , or the same data on GDP of the various countries and indicators of the state of health of the housing market, strong indicators to identify the pace of banking sector loans within the economy.
Original article published on Money.it Italy 2023-02-02 08:57:00. Original title: Trading, indicatori economici più importanti del momento