Key Economic Reports in Fundamental Analysis
Spread Betting traders that are not looking to base all of their trades on chart analysis can look at other methods, and the most traditional alternative can be found in Fundamental Analysis. This form of asset valuation uses market reports and economic data as the basis for trading decisions and forecasting future asset prices. There are many different types of reports that can be used in Fundamental Analysis but this method does provide a useful alternative for traders that would rather focus on economics, rather than pure price action and chart patterns.
In this section, we will look at some of the most common economic reports used by Fundamental Analysts: Gross Domestic Product (GDP), Inflation, Retail Sales, and Corporate Earnings. We will also look at the effect Interest Rates have on each of the major spread betting markets.
Gross Domestic Product: A Measure of National Economic Performance
When looking for a broad measure of economic strength or weakness, GDP rates offer the best measurement of overall performance. Specifically, GDP measures the monetary value of all products and services created by a country during a specific time frame (usually monthly, quarterly, or yearly). All industry sectors are included in this report, and Fundamental Analysts use this information to judge the economic strength or weakness that is present in the country at that time. Government productivity is included in this report, as well.
Spread Bettors can use this information when trading (usually for long term trades), as these reports will allow for in-depth assessments of the broad market trends present in a region. For example, those looking to establish positions in the Japanese Yen would first want to have some idea of the GDP growth trends that are currently in place. This would give traders an edge in determining whether or not the currency is well-positioned for long positions or better suited for short sells. GDP reports are easily accessible and freely offered on many trading platforms.
Inflation: Measuring Price Changes for Consumers and Corporations
Another piece of economic data that gets a lot of attention in the financial media is the national rate of inflation, which is essentially the rate at which costs for goods and services develops over time.
Inflation is typically measured at the producer level (costs paid by companies) and at the consumer level (the costs paid by individual consumers and households). For example, if the inflation rate is 2%, a product that costs $10 today will cost $102 next year.
This data can be significant when looking to establish Spread Betting positions. For example, those looking to establish trading positions in the S&P 500 might first want to look at Inflation at the producer level (this report is called the “Producer Price Index”). If this data shows that companies are paying higher prices for their materials, there is a smaller chance that corporate earnings will perform strongly. This can weigh on stock indices like the S&P 500 and a scenario like this would lead many Spread Betting traders to establish bearish positions.
The Influence of Retail Sales and Corporate Earnings
For traders that place most of their attention on individual stocks, economic reports like Retail Sales and Corporate Earnings releases become important. Retail Sales data shows the strength of consumer spending on a national level. This is crucial for determining the potential performance of companies with significant exposure in this area (such as Apple, or Wal-Mart) and trades in these companies have a higher probability of success of the overall trend in Retail Sales is understood.
More specifically, Corporate Earnings report give traders an idea of the recent performance of individual companies. These reports are released on a quarterly basis and give markets a great deal of information related not only to past profit performance but for future expectations as well. When this information is released to the public, large price moves can be seen in the associated assets, so spread betting traders that are aware of these developments can capitalize and make gains as these moves are seen.
Interest Rates: Watching Central Bank Activity
Last, we will look at Interest Rate policy, as this gives markets an indication of the ways various central banks are responding to the current economic environment. In general, central banks will raise interest rates as Consumer Inflation levels start to become unmanageable. Higher Interest Rates are put in place in order to constrict consumer spending on a larger scale. Higher Interest Rates makes it more expensive to buy products and the decreased spending activity helps reducing pricing pressures.
On the other hand, central banks usually reduce interest rates as growth rates (which might be measured by GDP) start to decline.
Lower Interest Rates are used by central banks to stimulate national economic growth. For Spread Betters, instances where a major world economy is seen lowering Interest Rates, it is an indication that growth rates should rise in that region in the future. Events like this are bullish for assets like commodities (Oil, for example), because the projected increases in economic activity tends to create greater demand for energy assets.
Conclusion: Fundamental Analysis Gives Traders a Better Idea of Overall Economic Strength
Traders looking to base positions on Fundamental Analysis should do their best to get a broad sense of the economic activity in a region. The economic reports discussed in this section can be critical when traders look to determine the potential price direction for an asset. Economic reports like GDP, Producer and Consumer Inflation, Retail Sales, Corporate Earnings and Interest Rates offer spread betting traders important clues when forecasting possible price direction and considering new positions.