The Economic Calendar – A Brief History
An economic calendar is frequently used by traders to track market-related events, including government and central bank decisions, economic indicators, and potential future monetary policy shifts. Market-related events, which tend to be formally announced or released via a press release, carry a high level of risk for investors. However, by closely monitoring regularly released economic calendars, investors can better gauge and diversify their exposure to global equities. This helps them reduce overall losses due to volatile market fluctuations, while enabling them to more easily gauge short-term movements that could result in price changes.
Investors rely on the calendar to make investment decisions. The calendar can provide market timing and volume information on key economic indicators, government and central bank actions, and currency market activity. A well-calibrated economic calendar offers vital buying and selling signals to investors. Because most technical calendars are based on two-month periods, they provide very precise signals with relatively short turnaround times. However, these signals can prove to be unreliable in longer periods.
Investors rely on the calendar to analyze long-term trends. Economic calendars examine longer-term trends and fluctuations, including consumer price index readings, gross domestic product growth, employment rate growth, inflation, and market interest rates. These types of data can reveal long-term price changes that may occur after a particular month or week. For example, if a particular indicator points to an economic surprise, then it could be reflected in the market even after a news event has occurred. Similarly, a negative economic calendar could signal the onset of a recession. Market participants should be alerted to changes in economic indicators regularly, so that they can take appropriate action in response to potential economic instability.
Central banks use the calendar to track the rates of interest that they will provide to commercial banks. These interest rates are important considerations for investors who wish to obtain long-term interest rates that will not fluctuate rapidly. Furthermore, central banks may use the monthly interest rates as a way to adjust the amount of money they loan out to various sectors and countries. By monitoring short-term interest rates, central banks can assess the strength of their national economic system.
A well-developed economic calendar provides information on the relationships between economic variables. For example, the values of exports and imports can impact on foreign trade flows, which in turn have an impact on foreign direct investment (FDI). Short-term measures of economic performance can also provide important indicators of economic stability. These include changes in gross domestic product (GDP), consumer prices, inflation, and interest rates among other things.
The usefulness of a well-developed economic calendar extends beyond the specifics of current economic indicators. Economists often look to these indicators to predict the behavior of the global economy in the near future. They look closely at trade flows, the direction of trade flows, and other factors that have the potential to affect the health of the global economy. Economic indicators can be used in forecasting the behavior of interest rates and international trade relations. Forecasting is a difficult process, but understanding what the economic indicators tell us can help greatly in this process.
Economic indicators are used as ammunition by policy makers when they want to make changes in the direction of the economy. When interest rates are rising, it becomes necessary to change the direction of trade. Similarly, when inflation is high, it becomes necessary to curb trade surplus. While the focus of this paper is on the utility of economic indicators in predicting the behavior of interest rates and trade imbalances, it is safe to say that the existence of a well developed and widely used economic calendar has had a far more far-reaching and beneficial economic impact than most analysts give it credit for.
As indicated above, the use of the economic calendar dates back to the days of the Ancient Egyptians. At the time, there was no currency, and all goods were measured in terms of their weight in gold. This meant that trade flows, both productive and unproductive, were not based on any fundamental economic principle. Rather, trade flows were based only on perceived immediate satisfaction of a need or desire. In fact, when needed, food was obtained by feasting upon the tons of grain lying in the fields waiting for cultivation. The Egyptian economy worked around the clock and was based almost entirely off of raw materials that were available to them at any given moment.