The most recent news and events in the economy should be closely followed by traders since they can have a significant influence on portfolio results. However, the vast amount of news and events that take place every day can be daunting. Therefore, it's critical to comprehend the various types of news and events in order to improve your decision-making. Read on, to explore four different categories of economic news and events: macroeconomic and microeconomic data, monetary policy developments, and unpredictable political and socioeconomic events.
Economic news: what it is & how it influences the CFD markets
Macroeconomic information
Macroeconomic data, which contains compiled figures like gross domestic product (GDP), inflation, or unemployment rates, is the most typical type of economic news that people of all ages will see. Macroeconomic data may be examined in order to discover more about potential economic patterns in general, but traders want additional details to make predictions about the future of particular companies, shares, etc. For instance, declines in consumer spending are valid indicators of recessions, which are expected to prove damaging to favourable financial instruments.
Understanding macroeconomic data may also provide traders with insight into how to diversify their trading portfolio as it is used to determine whether the global economic climate is currently in a risk-on or risk-off mode. When the market is in risk-on mode, for instance, traders need to keep bigger positions in riskier assets like equities and commodities. Macroeconomic data, however, takes a lot of effort to gather and is practically always made available to the general public about events that have already occurred. When everyone knows about it, it can often be too late for a trader to generate significant profits because it is already common knowledge.
Microeconomic information
Microeconomic data refers to economic information that may be useful, such as earnings announcements and other company or market-related statistics and information. When looking at the future behaviour of more particular assets, macroeconomic data may not be as helpful as microeconomic data. Although there is a tremendous amount of microeconomic information accessible on specific financial products, macroeconomic data is nevertheless frequently valuable.
It will be considerably simpler to analyse macroeconomic data about the UK economy to forecast the future growth of the FTSE 100 than it would be to make use of microeconomic data from each firm that makes up the FTSE 100, if you own shares in an FTSE 100 tracker fund, for instance. To try and obtain a thorough understanding of how the business's performance is progressing over time, it is definitely worthwhile to look at microeconomic data, such as financial statements and market share, if you are ready to invest a significant amount in the shares of a particular firm.
Once again, this information is made accessible to the public all at once, so it will be challenging for a trader to make significant profits from microeconomic data unless they have an improved method of trend prediction. Traders can then speculate on whether these patterns continue or change and react as needed so as to increase their revenue.
Central Bank activities
Events involving central banks, which include independent monetary policy decisions made by central banks worldwide, are a major source of economic news. A central bank's job in an economy is to preserve particular objectives, such as steady growth in the economy or a low rate of inflation. The Federal Reserve is the central bank in the US, whereas the Bank of England is the central bank in the UK. Using open markets to manage the supply of cash and the interest rate setting are their main tools for attaining these objectives. For instance, the Bank of England in the UK strives to keep inflation there at 2% annually. As a result, there are two ways via which the central banks' chosen policy will affect the CFD markets.
The first is the direct influence the economy plays over particular assets. For instance, the bank's interest rate directly impacts the currency's exchange rate, hence monetary policy would directly affect foreign exchange markets.
The second is how monetary policy affects traders' actions, which is an accurate indication of what the central bank expects for both the short and medium term. A central bank could indicate that it expects a downturn in economic development by lowering interest rates, for instance. Investors may therefore use Central Bank behaviour as a macroeconomic data indicator rather than anticipating the data to be made accessible to the general public.
Unpredictable social, economic, & political events
Socioeconomic and geopolitical events are financial situations that are uncertain until they occur but are not always entirely predictable. For instance, despite the fact that Russia's invasion of Ukrainian territory was a planned strike and not a coincidental incident, it would be classified as a stochastic political event. Due to the numerous ways in which big socioeconomic and geopolitical events may impact the CFD markets, it is crucial to be aware of them. Consider the above example to see how the connection of the worldwide banking system allows socioeconomic and geopolitical events to have a broad impact. An illustration of this is how Russia's invasion of Ukraine has led to a sharp rise in the price of oil globally.
The proverb "buy the rumour, sell the fact" or vice versa, can be used by traders who have a deep grasp of how various events impact markets to forecast how socioeconomic and geopolitical events could influence the markets. For instance, the unexpected release of the new budget plan by former UK Chancellor Kwazi Kwarteng had a significant impact on the UK economy and the financial products connected to it. This presents an opportunity because traders who have a solid grasp of politics and economics would have been able to recognise that the government that former Prime Minister Liz Truss was establishing was full of supporters of free markets, and they would have been able to act accordingly by selling the pound and "selling the rumour." It was time to change this position after the news was "in the market," or in this case, "buying the fact," once the news broke and the pound began to decline.
Again, there is a tremendous amount of data accessible across the globe, but keeping track of important events is essential for excellent trading techniques, and being able to accurately anticipate the course of the future is quite beneficial in the world of trading.
A final word on economic events
In order to maximise their trading portfolio's potential, a skilled trader should make use of all available information that is relevant. Being a competent trader requires that one has a solid understanding of the many forms of information at their disposal and knows when to allow each type to influence behaviour. The world's present economic condition may be derived from information that is freely available such as macroeconomic figures, microeconomic data, and Central Bank events, but traders can truly benefit from their comprehension of how socioeconomic and geopolitical events are going to impact markets.
DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication.