GLOSSARY OF TERMS

 

It’s 8:29:30. Thirty seconds to go until the Nonfarm Payrolls report and you feel your heart pounding a little across the screen and the S&P futures flushes 12 points in a nanosecond. The E-Minis then rip back up 6 handles making the premarket graphs a veritable mess of squiggly lines. As a trader, you ask yourself, what effect did the market data release have on the rest of the day and beyond. The module below will address the economic calendar, including growth or inflationary as well as its expected reaction.

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The Economic Calendar

While there are some economic indicators which are released daily, the reports which will affect the equity market. Knowing which indicators are the most important, is a fluid process as some have more prominence than others. In the Volcker days of the Fed in the 1980′s, the release of the level of M2, a monetary base metric, was the knowing what M2 is. For the purpose of this course, the level of importance for any economic indicator will be relevant economic indicators categorized by the cycle in which they are released:

 

Weekly Cycle:

    • Initial Jobless Claims
    • DOE Crude Inventory Reports
    • EIA Natural Gas Storage Change

 

Monthly Cycle:

    • ISM Manufacturing and Prices Paid Component
    • ISM Non-manufacturing Composite
    • Personal Income/Personal Spending
    • ADP Employment Survey
    • Nonfarm Payrolls (Employer Survey)
    • Unemployment Rate (Household Survey)
    • New Home Sales
    • Existing Home Sales
    • Pending Home Sales
    • Housing Starts
    • Leading Economic Indicators
    • Factory Orders
    • Wholesale Inventories
    • Business Inventories
    • Advanced Retail Sales
    • Empire Manufacturing Survey
    • Philadelphia Fed Business Outlook (,’Philly Fed”)
    • Trade Balance
    • Consumer Confidence
    • University of Michigan Sentiment
    • Producer Price Index (PPI… Headline and Core)
    • Consumer Price Index (CPL. Headline and Core)
    • Industrial Production/Capacity Utilization
    • Durable Goods (Headline and Less Transports)
    • PCE Reports
    • Chicago Purchasing Manager (Chicago PMI)

 

Quarterly Cycle

  • GDP (Advanced/Preliminary/Final)
  • Nonfarm Productivity (Preliminary)
  • Employment Cost Index (ECI)

 

Fed Cycle (6-8 weeks between rate decision)

    • FOMC rate decision
    • Beige Book
    • Fed Meeting Notes
    • Various speeches from FOMC members

 

Growth Economic Indicators

With only a smattering of exceptions, each economic data point can be classified as a growth or inflationary economic indicators can be broad based, such as GDP, or sector specific, such as Housing Starts. Growth re number, the stronger the economy appears to be and vice versa. The level of influence each report has dep picture. Other things which are notable include length of track record, volatility in the underlying data, and I economic reports released regularly with its importance to the capital markets as well as a short description:


Economic Report Importance Description

Economic Report Importance Description

Nonfarm Payrolls

Very High

Objective survey from employers on the general health of the country’s job market. This is almost always released at 8:30.AM on the first Friday of the month. Subject to big seasonal adjustments. Anything above +250K represents solid economic growth while anything below 0 is concerning. Economists universally believe this is a lagging indicator.

GDP

Very High
GDP, or Gross Domestic Product, is the most broad based economic -growth indicator as it represents what is the current output of the economy. The critical “Advanced GDP” will be released about 4 weeks after the conclusion of a quarter with the less important Preliminary and Final revisions released one and two months subsequent respectively. The number released is an annualized rate adjusted for inflation, otherwise known as “Real GDP.” Two consecutive quarters of negative growth defines a recession while anything over 5% should be thought of as strong growth. Over the past decade, 3-4% growth is considered average.

Unemployment Rate

High
Always released simultaneously with Nonfarm Payrolls, the Unemployment Rate, also known as the “Household Survey,” which represents what percentage of the entire U.S. labor force, is dwarfed on its influence in moving the overnight futures market because of its more important cousin. For this -report, one is only counted as “unemployed” if he or she is actively looking for work and cannot find it. Any number below 5% is consider full employment while anything over 7%, at least recently, represents weak economic growth.

ISM Manufacturing

High
Formerly known as the NAPM, the ISM is a survey among manufacturers regarding their outlook on their current and futures expectations for growth of their business. A score of “50″ is considered neutral, while anything above represents growth and anything below reflects contraction. Extreme levels include any number over 60 (strong economic growth) or below 40 (almost always foreshadows an imminent recession.) Always released at 10AM on the first day of the month.

Advanced Retail Sales

Moderate
Released monthly premarket at 8:30 AM, Retails Sales provides a nice barometer on the general health of consumer demand. The “Less Autos” component is more watched than the “headline” number because “sales” from car manufacturers are volatile, but weighted heavily in the report. There is also a “less autos, less gasoline” subset for gas prices can affect the release if energy prices have moved sharply during the month.

Existing Home Sales

Moderate-High
Monthly report which is reported in the number homes transferred from one owner to another. Data is presented in number of million units. One piece of information buried in the release is the national median price of house sold

New Home Sales

Moderate-High
Monthly report listed, usually 1-2 days after Home Sales. This report is more directly related to the Homebuilders as it relates to newly constructed homes.

Chicago PMI

Moderate-High
Similar to the National ISM, this survey yields a barometer for the manufacturing sector. Its importance comes from it always being released the morning of the last trading day of the month as many think it is a reasonable preview of the Ism which follows the next day.

Durable Goods

Moderate-High
Monthly pre-market report which is released at 8:30 that gives a barometer of consumer demand of “large ticket” or “durable” items. The headlines number is quite volatile, so the “less transports” subset is watched more closely as a single order from Boeing, which is seen more as a one time events, can skew the data by itself.

Consumer Confidence

Moderate
Monthly report released at 10AM that surveys many more correspondents and is more aligned with the jobs market than the UMICH Sentiment. Has been a decent leading indicator of future economic growth. Typically released later in the month than UMICH’s preliminary reading

UMICH Sentiment

Moderate
Preliminary report released in the middle of the month at 9:55AM and is more important than the “Final” number which usually does not stray from the preliminary number. More aligned to stock market than Consumer Confidence.

ISM Non-manufacturing

Moderate
Services sector complement to the Ism Manufacturing survey. While services part of the economy is much bigger than manufacturing, the lack of a long dated track record and lower level of predictability keeps its secondary to the ISM. Released at 10AM sometime during the first week of a new month, but after the first day.

ADP Employment Survey

Moderate
ADP is the largest processor of employment payrolls by a wide margin. Releases a survey, typically on Wednesday before the Friday Jobs Report, which tries to offer its prediction on Nonfarm Payrolls. It admits that it misses government jobs sector, so it offers a 2/3-1/3 blend respectively between its report and economic consensus for the best predictor of Nonfarm Payrolls Its volatility, lack of a track record and lack of strong predictive value, has muted its influence in the past few years.

Pending Home Sales

Moderate
A preview of Existing Home Sales two months out, Pending Home Sales, released in percentage form, lists how many existing homes are currently under contract. Released at 10AM

Housing Starts

Moderate-Low
Pre-market release at 8:30AM which provides an actual level of the start of new home construction.

Initial Jobless Claims

Moderate-Low
Weekly report which lists the number newly filed jobless claims. Can be used as a predictor of the Nonfarm Payroll release. Sometimes a lagging 4 week average is used to predict employment predictor as it can smooth seasonal issues which can be significant. Anything over 400K is seen as slow economic growth while anything below 325K is seen as solid. Released every Thursday at 8:30 AM.

Philadelphia Fed Survey

Moderate-Low
Another manufacturing survey, this time from the Philadelphia Fed District. Longest track record of fed districts, so has most influence comparatively. Used to be released at noon which allowed for more influence being in the middle of the day. Currently released on a monthly basis at 10AM with Leading Indicators.

Productivity

Moderate-Low
Represents level of outputs compared to level of inputs. Partly an inflationary report although a higher percentage is undeniably a better report. Anything below 2% (including less than 0) is considered poor while anything over 5% is considered excellent. Only growth economic report that can be read as a good number is truly a good number for stocks. For that reason, its influence should be greater.

Empire Manufacturing

Low
Similar to the Philly Fed, but released for the New York Fed district. Released at 8:30AM a few days before Philadelphia, which, given the much shorter track record, makes it mildly interesting to follow.

Personal Income/Spending

Low
Level of wage growth as well as sopending vs. savings patterns. Released monthly at 8:30AM and is generally ignored.

Leading Indicators

Low
Easily predicted as report takes 10 components and averages them to a score to predict future growth of the economy. Of the 10, 7 are known prior to the release. Used to be much more popular back in the 1980′s, but lack of predicted value has lessened its importance currently. Released at 10:00Am monthly with the Philly Fed.

Wholesale Inventories

Low
Inventory figures which loosely provide a metric for end user demand for product. Helps revise GDP. Generally ignored. 10AM release.

Business Inventories

Low
Has more retail relevance than Wholesale Inventories, but is still ignored. 10AM release.

Trade Balance

Low
Picture into U.S. trade deficit. Released at 8:30 AM, also used to help revise GDP over the quarter.

Factory Orders

Low
Another manufacturing report which almost always ignored. Released at 10AM.

Industrial Production/Capacity Utilization

Low
A final manufacturing report that is largely ignored. Released at 9:15AM premarket, Capacity Utilization can be seen as inflationary as well, for when it moves higher, it takes less productive equipment (i.e. more $ inputted) to produce a unit of output which can contribute to rising prices.


The tricky aspect about how to interpret a growth economic report is that one could argue that a “good number” which is negative for stocks. One general guideline to use in how to read the release is to assume a “good” recovery. Conversely, interpret a “good” number as “bad” only when the economy is in rapid growth and th

Inflation Economic Indicators

Unlike growth economic indicators, ones that track inflation measure directly the price pressures which may some more important than others, to ultimately provide a view to the same picture. Higher inflation is negative demand for borrowing and ultimately slow the economy. For each of these indicators, a higher number suggests a poor or higher inflationary economic release is almost always negative for stocks with only the fear of deflation equities. On the other hand, lower than expected inflation is almost always good for stocks. Finally, the where significant price pressure would prompt the FOMC to initiate or extend a tightening cycle. Conversely

The following is a list of the major inflationary economic indicators:

 

Economic Report Importance Description
Consumer Price Index (CPI) High Most well known and followed inflationary economic report. The “Core” indicator is much more important than the “Headline” for the former attempts to ignore price pressures in food and energy which can be quite volatile. Typically, the CPI tracks above the PCE which is the Fed’s preferred measure of inflation. Other issues with the CPI are hedonics which assumes a technological upgrade of a product with no price change is deflationary. Released pre-market at 8:30AM
Producer Price Index (PPI) Moderate-High Almost always released prior to the CPI during the month at 8:30AM. More volatile than its CPI cousin and therefore is not as influential. Measures the inflationary pressures of wholesale prices rather than retail.
Personal Consumption Expenditure Core Price Index (PCE) Moderate The PCE’s importance stems from it being the Fed’s stated preferred measure of inflation. If the PCE Core annualized percentage rises above 2.5%, it enters the range that the FOMC deems as one in which inflationary pressures are prevalent which would be a negative for the market. Number is even more predicable than the CPI which usually mutes its effects on the S&P 500 futures on its release.
ISM Price Paid Moderate-Low Released along with the ISM Manufacturing Report at 10AM on the first trading day of the month, the ISM Prices Paid component is usually seen as an afterthought to the more popular ISM headline. Only an outlying upside print in a high growth economic environment with an inline ISM Manufacturing report will have this indicator move stocks. Its measurement is also survey based form manufacturers.
GDP Price Index Moderate-Low Released with the headline GDP, the GDP Price Index, or deflator, is another measure of inflation that is released by the Bureau of Economic Analysis. Because it is report concurrently with GDP, it is largely ignored.
Employment Cost Index (ECI) Moderate-Low A quarterly economic release that measures wage and benefits pressure on employers. It is only followed during a period of high economic growth and is generally ignored otherwise.

 

The NYSE TICK -  represents the difference between the number of stocks
on the exchange trading on a +/- tick.  I look at several different
variations of the statistic when formulating a view on sentiment.
They include

Intraday TICK -  Any figure above +1,000 represents aggressive buying
in the cash markets.  Any figure below -1,000 indicates excessive
selling and/or shorting.

Closing TICK - The final TICK reading for any session is critical, for
it is the most liquid moment of any trading day.  Therefore, this
provides a window to larger institutions who need the NYSE MOC
facility to execute with minimal impact.  Similar to the Intraday
TICK, and measurements above +1,000 represents extreme buying while
anything below -1,000 reflects the opposite.

Average Monthly Closing TICK -  Simple arithmetic mean of the past 22
Closing TICK readings.  If this average drops below +60, the market is
oversold.  Anything below -50 is deeply oversold.  Any reading above
+300 is overbought while a move above +500 is extremely overbought.

Average Month Intraday TICK -  Simple arithmetic mean of the average
TICK over the course of the day during the past 22 days.  Anything
below +10 is oversold while anything above +100 is overbought.

Net Extreme TICK Readings - For each day, I subtract the number of
TICK instances that fall below -1,000 from those that read above
+1,000.  I then plot a simple linear regression model against the
historical data versus the move for the S&P 500 and determine where
the data point falls relative to the newly drawn line.  If the day’s
statistic falls below the line, then the internals were better than
the session’s return and vice versa for anything that falls above.

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