What are the key events in the economic calendar that move markets and why?

Each week we publish our Economic Diary which lists the key events each working week in the financial and economic world.

In the below article we’ve explained why the listed events are so important.

Interest rate decisions...

The decision to raise or lower interest rates is one of the most significant economic choices that can be made today. In the West, these decisions tend to be taken by independent economists sitting on an independent central bank committee. 

Interest rate decisions can be controversial, they can be disputed by both the media and politicians and they can be unpopular amongst the general public. They have a very real world effect almost instantly.

Markets tend to build a consensus of what they think will happen and shock announcements (higher or lower) than anticipated, can spook them causing trouble. 

Interest rate decision day’s are one of the most hotly watched and debated. Given their potential to cause fluctuations, they therefore tend to happen only a handful of times a year.

CPI (Inflation) rate changes...

When you read a story about the rate of inflation in a country, it is usually in reference to their CPI. This can be a tad confusing. The OECD explains it best:

“Inflation measured by consumer price index (CPI) is defined as the change in the prices of a basket of goods and services that are typically purchased by specific groups of households.”

Inflation has been a fact of economic life for most of history, prices always tend to go up over time. It is the speed and the volume though of these changes that can indicate the health of an economy. 

Countries in (or heading into) an economic crisis almost always have high levels of inflation. Consistently high inflation is extremely problematic and therefore the announcements of these figures are watched with intensity.

Unemployment rate changes...

A key indicator of an economy’s strength is the amount of citizens with or without a job. High levels of unemployment indicate a struggling economy in which there is simply not enough money flowing around for businesses to hire more staff and expand.

A company laying off staff is generally seen to be a company in trouble. The same goes for a country. Consecutive increases in the unemployment rate indicates problems in the wider economy. The publication of this data is therefore closely watched. Most Western nations publish these figures on a monthly basis.

Speeches/interviews with economic, political or financial leaders...

Markets are always on the lookout for anything that indicates a potential risk to political and therefore economic stability. Economic and political security almost always go hand in hand.

When influential people speak, markets react. We only need to look at the handful of speeches made by then PM Liz Truss & her Chancellor Kwasi Kwarteng to see this in action. It doesn’t take much to spook markets as we saw back in September 2022. Speeches often send signals about the direction of a country and therefore can trigger economic activity even before a policy or legislation has been formally changed. Markets often have an eye on the public diaries of the world’s central bank governors, finance ministers and government heads. 

Elections and their outcomes are also significant. The election of controversial figures who seek to depart from economic norms or results that are inconclusive can also spook markets and see capital flight. Election timetables and opinion polls are therefore also followed closely.

GDP and Trade data releases...

How much a country produces and how much it is importing and exporting are vital in seeing how a country’s economy is performing. No country wants to experience negative GDP growth, it is in fact 2 quarters (or 6 months) GDP contraction that means a country is formally in a recession, something nobody wants to see. 

Markets are heavily influenced by GDP data with negative GDP rates indicating risky investments and healthy GDP suggesting more bountiful opportunities. 

GDP often goes hand in hand with the balance of trade data. As a general rule, a country which exports more than it imports is seen in a more positive light. This is because there are many more opportunities in an export dominant economy than one which is reliant on imports from others.

Retail sales figures...

If people are spending, they generally tend to be confident about their country’s economy, if they are cutting back, it tends to be because they are worried about the future. Retail Sales figures are therefore one of the clearest indicators of public perception, using actual financial data. It’s one thing to tell someone how you feel and what you plan to do, it’s another to follow through and actually spend your money. 

Using a simple example, you could tell a pollster you need, want and are willing to purchase a new £700 sofa, however that doesn’t necessarily mean that when it comes to making the purchase, that you actually follow through and buy it. You might decide it’s not the right time and push it back for a couple of months. 

Wide gaps between what people say and what they actually do indicate a significant economic problem for a country.

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PMI (Purchasing Managers Index) numbers...

PMI Data is the least known of the above. It stands for ‘Purchasing Managers Index’ and is essentially a measure of how healthy specific sectors are. 

Manufacturing PMI numbers are the most closely watched. 

Purchasing Managers are asked a series of questions including how many new orders they have, how their suppliers are delivering and what their production levels are. These are then tracked against the previous month/quarter/year and offer a really clear view of economic health. 

If the manufacturing PMI is on the decline, then warning sirens will be going off. If the manufacturing PMI is improving then it further supports the case for a growing and healthy economy. This data can be some of the earliest indicators of how an economy is performing.

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