Nearly every day, a variety of economic statistics are published. It can be overwhelming for traders. Which are important? Which are unimportant? Where do you find scheduled releases? And what are the expectations for the releases? There are many online sources for economic data, including Google, Yahoo Finance and Bloomberg. I like the way the one on Yahoo Finance is organized, and the information it contains about the releases, but you can find one that you like.
It’s impossible to list every economic release traders should watch. Some are more important to a particular market than others (such as petroleum inventories or grain crop reports). I have listed which reports are the ones I feel are most important for North American traders to focus on.
U.S. Labor Survey and U.S. Non-Farm Payrolls (Monthly)
Initial Jobless Claims (Weekly)
Department of Energy – Petroleum Inventories (Weekly)
Department of Energy – Natural Gas Storage (Weekly)
Consumer Price Index (Monthly)
U.S. Trade Balance (Monthly)
Canadian Merchandised Trade (Monthly)
USDA Demand and Supply and Acreage (Periodically)
FOMC Meeting and Interest Rates (Periodically; roughly every six weeks)
Bank of Canada and Interest Rates (Periodically; roughly every six weeks)
Housing Starts and Permits (Monthly)
Durable Goods (Monthly)
Consumer Confidence (Monthly)
I could go on and on discussing these and other economic statistics and what they mean. Over time, you will become familiar with where to find the source of the statistics, what they mean, and how they are derived. Most major news providers will give you a good overview of key points. What important as a trader is how to interpret the data and plan a trade strategy accordingly.
Interpreting the Data
When analyzing a piece of data, everything comes down to context. There can be complex factors behind a particular number—and the market reaction.
The energy market offers a good example of this. The U.S. Department of Energy releases inventory levels for energy products each week. The crude oil and natural gas markets often don’t often react in the way one might expect (based on simple supply and demand) when these numbers are released. That is, when inventories increase, there is more supply, so one might expect market prices would decline. That doesn’t always happen, at least not immediately.
A number is just a number—you need some perspective on what is behind it. If a refinery expects oil prices will climb, it might increase raw crude oil purchases to lock in prices now. It will then have more supply to draw upon later. So you have to try and interpret the data in a sensible way; not only in terms of how the economy is developing, but also, the motivation of the producers and users.
Are oil inventories being depleted because refiners can’t sell the product and don’t want to accumulate oil? Or is it because the price is too high, and refiners don’t want to pay up for it? Are inventories increasing because demand is falling for the product and no one wants as much, or because refiners are getting a good deal in the market right now and are storing more? Don’t overlook the detailed pieces of the puzzle that are behind a particular report.
Let’s look at a real example of this dynamic in action in the market. The Department of Energy released its weekly natural gas storage report on September 2, 2010. Natural gas is stored in caverns where it is compressed and stored until needed. Typically in the summer more product is stored; peak storage capacity tends to occur around October. During the winter heating season, inventories tend to be drawn upon more and are depleted.
For the September 2 report, market participants were anticipating 55 billion cubic feet of natural gas in storage, based on analysts’ forecasts. The actual number came out a bit lower, at 54 billion cubic feet. As a trader, you would probably think that would be bullish for natural gas prices; there was less gas in inventory than expected. However, the market fell sharply lower at the onset of the release, and rebounded later in the day. Ultimately, the market ended little changed. It’s not uncommon to see a dramatic move immediately after a report is released, but once the data is digested and analyzed, the trend changes. Sometimes, the market doesn’t initially interpret the data correctly, or some other factor is at play.
Knee-Jerk Reactions
Electronic markets allow traders to build computer programs that initiate trades based on the outcome of a particular number. For example, if inventories are over by xx amount, a short position would be established automatically by a computer. So a large number of contracts will be traded quickly (a “knee-jerk” reaction to the data), then these short-term traders take profits just as quickly and often drive the market back to near where it was before the release. Following that action, the longer-term position traders typically come in. That means if you don’t have time to react to a report right away, it doesn’t mean you’ve missed the boat. You can be patient and usually wait until the short-term reaction is out of the way and market participants have had time to determine the reasons behind a particular number.
From my experience, it’s really a gamble to establish positions immediately before an economic release in anticipation of a certain outcome. An expectation may or may not be right. There is no bulletproof mathematical model and often even the best analysts and economists can only guess. If you think you are better than the average analyst, or have some unique perspective, you could pursue that type of strategy. However, I think it is wiser to wait until collective intelligence (the market) takes the time to analyze and reflect on the data and a clearer trend emerges.
Non-Farm Payrolls
In the current market environment, the monthly U.S. employment report (non-farm payrolls) is perhaps the most significant of all reports for traders in every market. The most significant problem in the U.S. economy right now is lack of jobs. People haven’t gone back to work and there are fears of a double-dip recession. No matter what the GDP numbers show, if people aren’t working, a sustained recovery is unlikely.
The U.S. employment report is released by the Bureau of Labor Statistics on the first Friday of the month at 7:30 CT/8:30 ET. Most of the growth in GDP has come from government spending not the private sector. It’s hard to make the case the economy is healthy when jobs are being lost.
Speeches
Traders not only have to pay attention to particular data releases, but speeches by prominent policymakers and officials can also move the markets. You might be surprised to see the markets start reacting when a speaker is talking live at a particular place and time before his or her speech is even finished.
Many speeches, particularly from central bank policymakers, are released in written transcript online before the speaker is actually done giving the speech. Many traders who read quickly will interpret these comments and start taking positions. So you might see the market start to move before a policymaker is done giving his or her views. If you want to react quickly, find the speech online and quickly read through it yourself. There are often question-and-answer sessions after the speech, which can sometimes clarify the written comments, and change the way traders interpret them.
Aaron Fennell is a Senior Market Strategist based in Lind-Waldock’s Toronto office, and is serving clients in Canada. If you would like to learn more about futures trading you can contact him at 877-840-5333, or via email at afennell@lind-waldock.com.
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