Watch Your Economic Calendar

These days, many spread betters rely on technical analysis as a means for implementing new trade ideas.  But even in cases where a trader will base entry and exit levels on this approach, it is a good idea to at least remain cognizant of when market-moving economic events are likely to occur.  This can help you to avoid setting positions during time of increased volatility and erratic changes in the underlying market trend.  One of the best strategies here is to consistently watch an economic calendar, as this is the best indication of the times when the market is likely to be jolted by new information.

 

Stock Events

 

Each asset class is most closely associated with a certain set of economic events that are most relevant.  For spread betters that are trading individual stocks, releases seen during the corporate earnings season are most likely to move asset prices and influence your open positions.  In most cases, traders will be watching for the earnings per share that is associated with the stock.  This is one of the best indicators of the overall strength or weakness of a company, and the final results are usually compared to the original expectations.  When a company improves on those expectations, stock values usually rise.  When a company disappoints on those expectations, stock values usually fall.

 

Of course, not all stock situations are created equal and there will be many cases where different information seen in an earnings report will be more impactful than the per share earnings figure.  But these numbers are generally what grab the financial news headlines and lead to major changes in valuations if the results are significantly above or below the original expectations.

 

Commodities Events

 

Commodities markets are different in that they are not tied to the fate of a particular company.  Instead, influential commodities events tend to be more simplistic and focus instead on reports highlighting supply and demand levels.  For example, the US Energy Information Administration (EIA) releases a weekly stockpile report that highlights the oil storage levels that are seen in the world’s largest energy consumer.  Releases that show unexpected increases in oil supplies tend to create selloffs in oil prices (and often in the stock prices for oil companies).  Releases that show unexpected decreases in oil supplies tend to create rallies in oil prices (and can help support values oil company stocks). 

 

Forex Events

 

In forex markets, most of the market moving releases stem from the macroeconomic data released by countries.  Key examples here include GDP, employment, inflation, and manufacturing reports.  In most cases, spread betters in forex will use this information to start constructing expectations for interest rates in a given currency.  Interest rates are important because higher interest rates give spread betters better yield rewards for holding long positions in the currency.  So for example, if the Bank of England releases a report that shows higher than expected quarterly inflation, many traders will start to buy the British Pound (GBP) in anticipation of higher interest rate returns in long positions. 

 

Central Bank Events

 

Central bank events tend to be the most important events on any economic calendar, and can influence all asset classes.   This can happen in different ways, however, so it is important to know how your asset class is like to behave if a central bank decides to raise or lower their benchmark interest rate.  For example, let’s say a central bank surprises market and raises interest rates.  What is likely to happen in stocks, commodities, and forex?

 

As a general rule, higher interest rates are negative for stocks and commodities.  This is because higher interest rates make it more difficult to buy items on credit (hurting stocks) and reduce demand for commodities materials (hurting commodities prices).  Conversely, higher interest rates usually mean that the country’s currency value will rally.  This is because investors will be rewarded with higher interest rate yield for holding long positions in that currency.  When a central bank decreases interest rates, the reverse is likely to occur (rallies in stocks and currencies, and declines seen in the associated currency).