Key Events Affecting the Markets – Economic Data, Earnings, News
Economic data plays a pivotal role in market fluctuations. Scheduled releases such as interest rate announcements, jobs reports, Consumer Price Index (CPI), Producer Price Index (PPI), and manufacturing data can all have a profound impact. These reports reveal the economic health of a country and give traders valuable insights into the future direction of the market.
- Interest Rates: Central banks, such as the Federal Reserve in the U.S. or the Bank of England in the U.K., regularly update interest rates. A change in interest rates can cause a ripple effect, influencing everything from currency values to stock prices. A rise in interest rates typically strengthens a currency but may negatively impact stock prices as borrowing costs increase.
- Inflation Data (CPI, PPI): Inflation is a key indicator of economic stability. When inflation rates rise too quickly, central banks may intervene, leading to changes in monetary policy. These changes often trigger volatility in both currency and equity markets.
- Employment Reports: Jobs reports, such as the U.S. Non-Farm Payrolls (NFP), are crucial to understanding economic growth. Strong employment numbers often signal economic expansion, while weak job growth may indicate potential economic slowdown.
For traders, understanding when these reports are released and their potential impact on the market is vital. Traders who are aware of these schedules can make informed decisions about their positions and avoid taking on unnecessary risk, particularly around sensitive times such as pre-announcement periods.
The Impact of Earnings Reports
In addition to economic data, corporate earnings announcements significantly influence stock prices. Companies release quarterly earnings to provide shareholders and analysts with insight into their financial performance. These reports often lead to major stock price movements depending on whether the company’s results meet, exceed, or fall short of market expectations.
- Earnings Surprises: A company reporting earnings that surpass market expectations (an “earnings beat”) can lead to a sharp increase in stock prices. Conversely, disappointing earnings (“earnings miss”) can cause a steep decline.
- After-Hours Trading: Earnings reports are typically released outside of regular trading hours, meaning traders may not have time to adjust their positions immediately. This lack of control over risk can be particularly concerning when the market opens, as stock prices may gap up or down based on the earnings report’s outcome.
As a trader, it’s important to track upcoming earnings reports for the stocks in your portfolio. If you’re holding positions overnight, especially in volatile stocks, it’s crucial to be prepared for the potential of a market gap due to an earnings surprise.
So we have got a lot of events which affect the markets. We have economic data that is scheduled, we have companies releasing earnings, we have harvest inventories, breaking news. Let’s have a look at each one.
Ok, so, economic data and I’m going to include a link again in the tools section of this course, it’s a free section where you can get your calendar. Now we have things that come out regularly like interest rates announcements every month, we have jobs reports, cpi, ppi, inflation baskets, we have manufacturing from factories and this stuff comes out every day.
It may be scheduled every week or every month depending on what the data is but, the important thing for us as traders is we make sure we understand where the risk is coming from during that day and avoid it because, what we don’t want to do is have a position on when we know we have a big jobs number coming up. So we have got a long on the FTSE, and we know there is a big jobs report coming up in the next ten minutes it’s probably prudent to take the position off or be prepared to sit through what could be wild volatility. So this is why we are always looking at our calendar in the day or in the week or in the month, to see what could affect the markets.
Now obviously, each country has its own announcements, in the US we have got FED, in the UK we have the Bank of England, and we have different economic reports coming out for each country and they are going to affect things like the index of that country, the currency of that country, and then broadly oversee the stocks.
Now stocks specific, we have earnings, obviously, companies release earnings to tell you how they are getting on and we have got those quarterly. We have interim reports, we have management news. So if you are long, let’s say Facebook, and you are thinking of holding the stock overnight, you need to be sure they haven’t got a scheduled announcement because the problem you have if you are trading stocks and holding overnight, is, that once that market is closed you can’t adjust your position at all.
You’ve let go of full control of your risk and whatever happens, happens. Now let’s say the company comes out and warns they have made a massive, they have missed their profit targets, the next day that stock is going to gap significantly lower. Now that’s fine if you are sure, but if you are wrong obviously that’s going hurt. So, understanding where the risk of the market your trade is coming from, what’s your daily event risk, and also knowing what people are waiting for in the market.
If we were a day before some really, really, key economic data then perhaps the day is going to be quiet because everyone is waiting for that data. So understanding that and recognising how that’s going to affect the market you are going to trade.
The other thing is the harvesting inventories, we have got what is called crude oil and natural gas inventories which tells people how much we have got in stock. Now, that’s not so important sometimes because it becomes irrelevant but let’s say everybody’s looking at crude oil. We had a period a few years ago where it was very, very, important and people wanted to know how much crude oil we had in stock and how much was being pumped out, and all this stuff because it determined the price of crude oil.
Obviously the more scarce a commodity is, the higher the price and if demand is going up, there’s not much of it about. You get a little bit of panic and people start paying more and more and more for it. The same with natural gas and it goes in swings and ebbs and flows, depending on how volatile or how much volume is flowing through the market and then obviously we have things in the soft commodities like the harvests and we get those reports; and there’s a great website for that, again I will include that at the end but in addition to that we have to prepare ourselves for breaking news, so unexpected world changing news and it does come along.
We have Brexit, now it wasn’t unexpected, we knew that there was a vote in the British citizens were going to vote but the outcome was unexpected. So there’s always that surprise from unexpected scheduled news. Then we have the unfortunate things like terrorism and deaths.
