In trading, certain decisions can make or break their performance. A single decision to buy or sell an asset can lead to significant losses. To minimize the amount of losses one can make, traders use several strategies. The most important methods of analysis that traders use are the technical and fundamental analysis. In technical analysis, traders use historical data and technical indicators to predict the future movements of the financial instruments. In fundamental analysis, the traders use the underlying economic data to make decisions.
The fundamental data is very important because it helps investors make better decisions on where to invest their money. For example, investors are likely to invest in countries where the economy is growing and where more people are employed. Here are the most important economic data to look at.
Every month, most developed countries release their employment numbers. These numbers show the number of people who have been employed and unemployed during the month. It also shows the wages and the participation rate. An economy where more people are being employed and one where the unemployment rate is reducing is usually desired. This is because it increases the chances for a rate hike.
Central banks have a goal of protecting consumers from rising prices. When the prices are rising faster than wages, the officials tend to hike interest rates. Every month, countries release the data on consumer prices. As a trader, faster consumer prices growth mean that the central banks will raise interest rates while falling prices could mean reduced hikes.
Producer Price Index (PPI)
This is another data that is released by countries as a measure of inflation. The PPI measures the average changes in selling prices received by domestic producers for their output. It tracks the changes in prices for almost all goods-producing industry in an economy. An increasing PPI is an indicator of increasing inflation.
Gross Domestic Product (GDP)
This is another closely-watched economic data. It is a reflection of the growth of an economy. Countries release the monthly and quarterly change in GDP. An economy that is growing very fast could mean that intervention from the central bank is necessary. This is because an economy that is growing very fast could increase the chances of a recession.
Manufacturing and Services PMI
These are the major sectors in most developed countries. Manufactures convert raw materials to finished goods while service industry does many things like hospitality and software development. A country that has a diverse mix of manufacturing and services is usually at a better position to succeed. Every month, private companies like HIS Markit release the PMI data. They collect the data by surveying the major stakeholders in the sector. An improving PMI is an indicator that the economy is doing well.
The retail sector employs millions of people in the United States. It is also a major employer in other countries. As such, every month, we receive the retail sales data from many developed economies. An improving retail environment mean that the economy is doing well.
Real Estate Data
Every month, we receive the real estate data from private and public agencies. The data usually shows the number of new homes built, the number of housing permits sought after, and other factors. In economies that do well, more people are usually buying houses leading to improving housing prices.
All the data pointed out above usually lead to the interest rates. When all the data mentioned are improving, it is usually an indicator that the economy is doing well. This means that the central banks would seriously consider hiking interest rates. This data is released every month when the officials meet.