US FED hikes Discount rate to 0.75%

U.S. Dollar Trading (USD)

U.S. Dollar Trading (USD) was on the back foot as stock rallied in Europe and in the US before reversing after the New York close on an unexpected discount rate rise by the FED. The discount rate is the rate that the FED lends emergency liquidity to banks. This is positive for the Dollar as it is a step in the direction of raising the more important Fed funds rate. In US stocks DJIA +86 points closing at 10392, S&P +7 points closing at 1106 and NASDAQ +15 points closing at 2214. Looking ahead, January CPI is forecast at 0.3% vs. 0.1%.

European Euro

The Euro (EUR) found some support in the stronger than expected US stock market after testing support at 1.3550. The Fed Rate move led to new 9 month lows as the pair tested support at 1.3500. EUR/JPY is well supported as the USD/JPY moves higher. Overall the EUR/USD traded with a low of 1.3442 and a high of 1.3657 before closing at 1.3510. looking ahead, February PMI manufacturing forecast at 52.6 vs. 52.4 previously.

Japanese Yen (JPY)

The Japanese Yen (JPY) the USD/JPY uptrend helped most crosses to rally. The FED news had the effect of increasing US interest rate expectations and the USD/JPY is especially sensitive to this sort of information. The BOJ earlier in the day held rates at 0.1% and in the press conference again relayed their conviction in fighting inflation. Overall the USDJPY traded with a low of 90.56 and a high of 92.11 before closing the day around 91.90 in the New York session.

Pound Sterling (GBP)

The Sterling (GBP) was sold in Europe on news that the UK public finances had unexpectedly increased by 4.3bn vs. -2.4bn forecast and in the current environment any bad news about government debt will be greatly scrutinized by the market. Overall the GBP/USD traded with a low of 1.5404 and a high of 1.5690 before closing the day at 1.5450 in the New York session. Looking ahead, January Retail sales are forecast at -0.5% vs. +0.3% previously m/m.

Australian Dollar (AUD)

The Australian Dollar (AUD) was shunted lower by USD strength post rate hike but had been well supported on AUD/JPY buying earlier in the day. The US stock markets reaction to the news today will be critical for the AUD/USD direction over the short term with risk skewed to the downside. Overall the AUD/USD traded with a low of 0.8887 and a high of 0.9028 before closing the US session at 0.8920.

Oil & Gold

Oil & Gold (XAU) rallied off lows in Asia to touch $1025 in the US session before the Fed Rate hike sent the precious metal over $20 an ounce lower in late New York trade. Overall trading with a low of USD$1097 and high of USD$1124 before ending the New York session at USD$1105 an ounce. Continued to rally but gave up these gains after the closing bell. Crude Oil was down +$1.05 ending the New York session at $79.06.

Technical Analysis: Fed Rate Hike Sent Gold Over $20 An Ounce

Euro (EUR)

Euro – 1.3485 : Initial support at 1.3425 (May 18 low) followed by 1.3400 (Big figure). Initial resistance is now located at 1.3788 (Feb 17 high) followed by 1.3839 (Feb 9 high).

Yen (JPY)

Yen – 91.70 : Initial support is located at 90.13 (Feb 17 low) followed by 89.72 (Feb 16 low). Initial resistance is now at 92.11 (Feb 18 high) followed by 93.2 (intraday resistance).

Pound Sterling (GBP)

Pound – 1.5425 : Initial support at 1.5400 (intraday support) followed by 1.5200 (intraday support). Initial resistance is now at 1.5500 (Intraday resistance high) followed by 1.5861 (Feb 1 low).

Australian Dollar (AUD)

Australian Dollar – 0.8915 : Initial support at 0.8849 (Feb 15 low) followed by the 0.8786 (Feb 12 low). Initial resistance is now at 0.9037 (Feb 17 high) followed by 0.9093 (Jan 25 high).

Gold (XAU)

Gold – 1105 : Initial support at 1098 (Feb 18 low) followed by 1078 (Feb 12 low). Initial resistance is now at 1127 (Feb 17 high) followed by 1141 (Jan 20 high).

Oil

Oil – 78.05 : Initial support at 77.00 (Intraday Support) followed by 75.00 (Intraday Support). Initial resistance is now at 79.50 (Intraday Resistance) followed by 80.00 (Intraday Resistance).

1. Country’s Balance of Payments (BoP). A Country’s Balance of Payments can be defined as the stream of payments among any single country with the rest of the countries. It is the relationship between any country’s domestic payments and debts which she owes to the foreign countries and the amount which it has to receive from the foreign countries in the shape of receipts and credits for a specified period of time which is generally calculated as one year.

There are three components which form part of the balance of payments and these are current account, capital account and the official reserve account. For the calculation of the balance of payment, if a country has received money, this is known as a credit and if a country has paid or given money, the transaction is counted as a debit. Thus we can say that, the imports are considered as a debit item and the exports are termed as a credit item.

Balance of Payments of a country = Current Account Balance + Capital Account Balance + Official Reserve Account Balance

Ideally, for a country, the balance of payments should be zero depicting a balance in assets and liabilities. This is normally not observed, thus the country’s deficit or surplus can paint a picture for the trader or observer of the economy of the country.

2. Country’s Current Account. The current account of the country is calculated as the current income from investments and the trade transactions. It also includes the unilateral transfers. Current account consists of income generated by trading, merchandise and services, foreign aid, foreign stocks, bonds and real estate.

3. Country’s Capital Account. The capital account is measured by all international capital transfers. This refers to a country’s transactions outside the country from the sale of real and financial assets. It also includes the extension of loans. The capital account is sub-divided into different sub-categories like monetary flows from debt pardon, the transfer of goods, financial assets of migrants entering or exiting the country, etc.

The Housing Starts and the Building Permits are both believed to be the leading economic indicators for the economy of any country. The source of these reports is The Census Bureau of the Department of Commerce and they are issued on or around 17th of each month.

The Housing Starts Report is considered as the number of private houses (technically housing units) on which construction has been started over a specific period of time. This is an important economic indicator as it is a clear indication of the money in general public’s possession. If there is a decrease in the housing starts, it clearly indicates that less money is being inducted in the economy. Vice versa, if more houses start, it means that more money is being introduced by the public in housing sector. At the same time the increase in Housing Starts means that the Federal Fund Rate is low enough for individuals to be willing to borrow money from the banks.

Building Permits are the permits which are required in order to permit excavation. Whenever there is a reduction in the mortgage rates, an increase in building permits as well as the house starts is observed within a few months time. Permits are followed by the starts. In some areas of the country, the permits are not required, thus the level of permits remains less than the level of starts over a period. This remains a major reason because of which the housing starts and the building permits do not match over the years.

Another reason for this difference in permit to start relationship is that at times the construction is dumped after the issuance of permits but before the launch of construction. The change of plan from the builder’s side also affects this relationship when they make an alteration in diagram after issuance of original permits. Specifically in apartment buildings, the ultimate number of houses may be more or less than initially planned and permitted.

The Beige Book Report is a leading indicator of the economy. It is a report issued by Federal Reserve Board. It is also called as “the Summary of Commentary on Current Economic Conditions by Federal Reserve District”. It is released two Wednesdays prior to each meeting of the Federal Open Market Committee (FOMC) Meeting which is held eight times in one year. It means that this report is published eight times in a year.

The Beige Report is unlike other economic indicators in a way that its style of writing is a bit different. Instead of being filled with a lot of raw data, it is written in a more relaxed and conversational fashion. This book consists of 13 different sections. The first section provides the national summary which is drawn from the twelve regional reports. The remaining twelve sections contain the regional reports from each of the member Fed district banks.

The Beige Book presents an original viewpoint of economic activity. There is a marked difference between this report and the other indicators containing enormous amount of dry data. It is used by the members participating in the FOMC meeting.

This book mainly comprises of the forward looking comments and thus helps the investors and traders to decide about their future investments. It gives a clear and concise picture of the health of economy and endeavors to join the data from different reports to give qualitative measures rather than mere figures.

Beige report is the only economic indicator which gives the detailed account of economical data on geographical basis instead of compiling the figures on the basis of industrial group or economic sector.

One major short fall of Beige Report is that each Fed district includes the data in this report at its own discretion. The report may contain the details on an industry from one district while the other districts do not report on it. Thus the data may have ambiguities.

This book provides an insight to the investors about the way the federation approaches its financial policy judgments and responsibilities.

The Durable Goods Order is officially named as “Advance Report on Durable Goods Manufacturers' Shipments and Orders”. It is issued by the Department of Commerce on monthly basis between the 23rd and 29th of each month. It is one of the leading economic indicators and is also known as a vital factory-sector indicator.

It has immense market importance and the traders largely rely on this report for planning their investments. This report mainly determines the volume of fresh orders in dollars, consignments and unfilled orders of durable goods.

Durable Goods Order clearly depicts a reading of any country’s future industrial and manufacturing activity. This report includes all the manufactured goods having a normal life expectancy of three or more years. These items include electrical home appliances, furniture, other house-hold items, etc.

The Durable Goods Order points toward an expanding economy when a noteworthy boost of durable goods order is observed over several months or over a long period of time. When a very powerful rising trend is observed in durable goods order, it clearly suggests inflation, higher interest rates, encourages a strong dollar and proposes increasing corporate profits. Thus it very clearly signifies a positive trend for stocks. Similarly, a negative drift for stocks is depicted by a frail and declining trend in durable goods order.

This report is also followed by the economists as the barometer of employment trends. When the future production paces forward and upward, the employment rate follows. Durable Goods Order Report practices huge to and fro movement on monthly basis. The reason for this swing may be an explosive nature of aircraft and other related orders. Another way adopted by the traders and the analysts to overcome this effect is that they study the figures excluding the transportation orders. In this way, they can judiciously judge the underlying trend of durable goods order.

More than any other indicator, the durable goods report provides us more insight into the supply chain which is more helpful to the traders for recommending them the potential industry to invest in.

Employment Cost Index (ECI) is a report issued by the U.S. Department of Labor on quarterly basis. It is prepared by the Bureau of Labor Statistics (BLS). This report calculates the expansion of employees' compensation including the benefits and the wages. The index is usually based on the survey of employer payrolls. It is conducted in the last month of each quarter. The ECI keeps track of progress in the labor cost. This also includes bonuses, wages and fringe benefits for workforce at all levels of a company or a corporation.

The basic theme of examining this index is that inflation increases with increase in wage pressures because compensation has a tendency to boost before companies raise prices for customers. Hence, it is believed to be inflationary when this index shows signs of a jump that is higher than projected for a given period and also has a further upward tendency. Moreover, the yields and interest rates also climb up as inflation increases. This upward trend results in a reduction in bond prices.

Employment Cost Index is considered to be one of the advanced and the sophisticated measure of original tendencies in worker compensation as a cost of production. Despite of the fact that ECI receives much less attention by the press than the most commonly quoted Consumer Price Index (CPI), still it remains an extensively followed index.

Being the measure of inflation in consumer prices, the ECI usually provides a clear indication of rising or declining employment cost changes. In this way it helps in predicting the inflation of salaries as well as the employer-paid benefits. Most of the experts believe that the Employment Cost Index is indispensable and very important for understanding the US economy. They think that it guarantees the precision of the statistics on employers compensation costs which is essentially required for monetary policy making and for profitable business scheduling.

Consumer Confidence Index (CCI) is defined as the measure of how optimistic or pessimistic consumers are. It is normally based on their activities of savings and spending. It is extracted from the survey results. Since it forms the basis of any market economy, thus traders are required to gain knowledge of these measures. They should also study how to analyze them.

If we analyze the Global Consumer Confidence country wise, it is clearly reflected that a large difference exists all around the world. One of the major indicators of economic trends in a mingled global economy is the tracking of international consumer confidence.

The Consumer Confidence Index is computed on monthly basis depending upon household survey of consumers’ opinions on current conditions and future expectations of the economy. 40% of the index is based on opinions on current conditions, whereas the remaining 60% depends upon the consumers’ expectations of future conditions.

The Consumer Confidence Index (CCI) is calculated every month by conducting a survey of 5000 households by the Conference Board. The survey basically consists of three different headline figures. These three headline figures include how the consumers see the economy currently, how the consumers sense the general economy is moving and how the consumers perceive the things in six months from the time of survey. The survey participants are required to reply each question as “positive”, “negative” or “neutral". The results are then compiled and an index value is calculated for each question separately. The average of the index values of all the questions is taken to compute the Consumer Confidence Index.

In very simple words we can say that the economy grows and consumers spend more money when their confidence is trending up, indicating higher consumption. Drop in consumer confidence is an indication of slowing economic growth. It may be concluded that the economy is headed into trouble.

Some of the employment indicators are as follows:-

1. Employment-To-Population Ratio. The fraction of an economy’s working-age population that is in employment is known as employment-to-population ratio. This ratio presents critical information on the capacity of an economy to generate jobs. If this ratio is overall high, it is in general considered to be good but this indicator alone is unable to supply any knowledge on evils of labor market such as underprivileged working environment, low earnings, underemployment, etc. Therefore, the experts candidly advise that the indicators should be evaluated jointly in any estimation of economy-specific labor market policies.

2. Labor Force Participation Rate. The labor force participation rate can be defined as the percentage of the inhabitants of a country which are working in the labor force. The labor force consists of the workers which are between 15 and 65 years of age.

In some of the countries, the majority of citizens contribute in the labor force with paid service at some stage in their lives. As the natives come to join or depart from the labor force, its contribution varies. It may also be changed by other choices such as working and studying at the same time or other family responsibilities.

3. Age and Sex. “Age and sex” is another type of employment indicator that shows the employment status of people in relation to their ages and gender.

4. Marital Status. This indicator depicts the employment condition of an individual with respect to his or her marital status. The indicator is utilized to find out employment tendencies in married and unmarried individuals.

5. Multiple Jobholders. It is also a type of employment indicator that expresses the employment status of persons who are employed on multiple jobs.

6. Employed Part Time. “Employed Part Time” is an indicator that shows the employment status of employees who are doing part time jobs. Employed part-time workers include those persons only who usually work less than 35 hours per week.
7. Self Employment. This indicator includes those individuals who get their earnings from a trade or business which they run in their personal capacity.

Following is a list of leading economic indicators which are used in the USA. Obviously, there are many more, as well as in other leading economies (such as Germany, the UK, Japan, etc.). In general, not only the numerical value of an indicator is important, but also the anticipation and the forecast to such, and the impact of the relation between anticipated and actual figures on the market.

Such macro indicators are being followed by the vast majority of traders worldwide. The "quality" of the published data may differ over time. The value of the indicator data is considered important if it presents new information, or is instrumental to drawing conclusions which couldn't be drawn under other reports or data. Furthermore, an indicator is highly valuable if one may use it to better forecast future trends.

Note that in the USA most indicators are published on certain week days, rather than a monthly date (e.g. - the second Wednesday in each month, etc.).

Each indicator is marked with "H"-"M"-"L" (according to its level of importance, as commonly considered).

H: CCI - Consumer Confidence Index
H: CPI - Consumer Price Index; Core-CPI
H: Employment Report
H: Employment Situation Report
H: FOMC Meeting (Federal Open Market Committee): Rate announcement
H: GDP - Gross Domestic Product
H: ISM (Institute for Supply Management) Manufacturing Index
H: MCSI - Michigan Consumer Confidence Index
H: NFP - Changes in non-farm payrolls
H: PMI - Purchasing Managers Index
H: Retail Sales Data; Retail Sales less Automotives
H: Tankan Survey
H: TIC (Treasury International Capital) Data on transactions in long term securities
H: Trade Balance
L: Beige Book
L: ECI - Employment Cost Index
L: PCE - Personal Consumption Expenditure
M: Budget Statement Monthly
M: Composite Index of Leading Indicators
M: Current Account
M: Durable Goods
M: GDP Price Deflator
M: Housing Starts
M: Industrial Production Capacity; Production Utilization
M: Initial Jobless Claims
M: Philadelphia Fed Index (Business Outlook Survey)
M: PPI - Producer Price Index; Core-PPI

PPI - Producer Price Index; Core-PPI - Bureau of Labor and Statistics; The second full week of each month, 8:30am EST, covers previous month data. The PPI is not as widely used as the CPI, but it is still considered to be a good indicator of inflation. This indicator reflects the change of manufacturers’ cost of input (raw materials; semi-finished goods; etc.). Formerly known as the "Wholesale Price Index", the PPI is a basket of various indexes covering a wide range of areas affecting domestic producers. Each month approximately 100,000 prices are collected from 30,000 production and manufacturing firms. It is not as strong as the CPI in detecting inflation, but because it includes goods being produced it is often a forecast of future CPI releases.