Fundamental analysis –Chapter II.

Tuesday, Dec 16 2014

There are number of factors that point out to economic growth of one country. The most obvious of them are GDP figures and inflation mentioned in the previous chapter. However, there are number of other factors. One of them are Retail Sales. If Retail Sales are growing this indicates that consumers are willing to spend more which is often sign of consumer belief in stable economic growth. Another, factor is also Trade Balance. However, strong trade balance figures does not necessarily contribute to a stronger currency. This is so because rising currency means that the cost of that country’s goods are rising against its competitors, which could have negative affect on countries exports.

There are also some economic news that are described as less important in economic calendar but could indicate future economic state. Example of these would be Business Inventories figures. If manufacturers are increasing their inventory, you can take that as a sign that they expect business to pick up in the near future. One of the things that can help in predicting where economy is heading within next few months is housing sector, that is house price movements. However, when house prices start to change they will be of no major impacts on markets in next six month or even a year.

There are many other economic events that can move the markets. Some of them include surveys on business and consumer confidence, industrial production figures and producer's manufacturing index (PMI) as well as producer's purchasing index (PPI). What is important to note that not all economic events have the same impact, in the same country and at the same. While in USA, currently, labour market data is most important among economic data, in Eurozone the focus is on inflation figures. That is why traders must keep up-to-date with previous data and expectations and not only wait for incoming figures.

In the next Chapter we will deal with the central event in fundamentals - central banks and interest rate decision.