Daily Digest:
w/c 17 June 2024: The US data highlight this week is Retail Sales on Tuesday, with global Flash PMI data on Wednesday. Plus on the central bank side we get the RBA, PBoC, SNB and BoE all in play

Fundamental and Macroeconomic Analysis

Fundamental Analysis is the assessment of a business or a whole economy based on data pertaining to that business or economy. For an individual company this would include an analysis of the balance sheet, liabilities, assets, revenues, earnings, profits etc. For a country’s economy, fundamental (or macroeconomic) analysis would look at and analyse many factors including; GDP, Employment, Inflation, interest rates, production as well as many other data points. Traders can then use their analysis to derive a valuation about the true fundamental value for a security, asset, commodity or FX rate. The fundamental (or macroeconomic) analyst or trader can then compare this valuation with the current price (of the security, asset, commodity or FX rate) and then make a decision of whether it is overvalued or undervalued, then decide whether to sell or buy. In this section we will look at fundamental and macroeconomic analysis in more detail. Furthermore, we will deliver articles aimed at developing the readers’ understanding and use of this approach. Read more of our forex education articles here.

Macroeconomic and Fundamental Analysis Today in 2022

The global financial market world of trading and investing has seen some seismic shifts in 2022! The events we describe below that have seen high volatility in all financial markets asset classes, have meant macroeconomic and fundamental analysis is all the more important in assessing and understanding trading and investing opportunities. Obviously, a strong knowledge of market fundamentals and macroeconomics has always been important in the world of trading and investing, but given the erratic and unpredictable nature of the current and developing world economic and geopolitical environment, a good foundation of macroeconomic and fundamental analysis is all the more important. 

Surging inflation rates (increases in prices) primarily driven by the war in Ukraine, has seen energy prices scorching higher in 2022 and has also produced large increases in the price of other commodities, notably food. In addition to the war in Ukraine, the high global inflationary pressures have been increased  by supply chain bottlenecks as the global economy has continued to emerge from the impact of the Covid-19 pandemic.

Inflation rates in the world’s major economies have hit levels not seen for over 40 years in many countries . These extreme, higher price pressures have seen central banks (that were super dovish for most of the 21st century), quickly and aggressively shift to a far more hawkish position.

This central bank hawkish shift has been at different paces across central ban, meaning that interest rate differentials across global economies have widened and narrowed. These differing interest rate differentials have had notable impacts on global bonds markets, Foreign Exchange markets, stock markets and also the commodity markets.

The uncertainty from the war in Ukraine, plus the combination of shifting global central banks, moving inflation rates and interest rates differentials between, and the likely recessions that are coming in 2023, means that volatility in global financial markets is likely to stay elevated well into 2023.

A solid, knowledge foundation of market fundamentals and macroeconomics is key to understanding financial market price movements and being able to successfully invest and trade in 2022 and on into 2023!


Beginner

Stock Sell-off Key Terms

In this article we will focus on the movements of the stock market. It’s not just numbers and tickers, it’s a wild ride, full of excitement. But every now and then, that ride throws a curveball, and we find ourselves in the midst of what folks in the financial realm call a “stock sell-off.” It’s … Continued

Beginner

The Federal Reserve Explained

The Federal Reserve (also known as the Fed) is, quite simply, the world’s most important financial instution. It is the central bank of the United States, which is the world’s largest and most important economy in the world. It governs the money supply of the US dollar, which is the world’s primary reserve currency. The … Continued

Beginner

Nonfarm Payrolls Explained

The Nonfarm Payrolls data is traditionally seen by traders as the most important economic data of the month. It records how many jobs were added in the United States in the prior month. The more jobs that are being added, the stronger the outlook for the US economy. Nonfarm Payrolls (NFP) data is announced as … Continued

Beginner

Monetary Policy and Interest Rates Explained

Monetary policy is the way that a central bank manages an economy. It is effectively the control of the supply of money in the economy. A central bank aims to promote stable economic growth. It looks to achieve this via monetary policy. Over time, an economy can either overheat or contract too much. The central … Continued

Beginner

The European Central Bank (ECB)

The European Central Bank (also known as the ECB) is the central bank for the euro area. It has the power to set monetary policy for the 19 countries of the Eurozone. Its mandate is to create price stability for the euro area. To achieve this, the ECB targets a 2% level of inflation. This … Continued

Beginner

CPI inflation Explained

The CPI (Consumer Price Index) is used to measure the level of inflation (and potentially deflation) in an economy. Although not used everywhere, it is a standard gauge that measures general price increases for countries. It is used by governments, central banks and market participants and is considered to be a benchmark to compare inflation … Continued

Beginner

The Bank of England (BoE)

The Bank of England (also known as the BoE) is the central bank for the United Kingdom of Great Britain and Northern Ireland (i.e. the UK). It has the power to set monetary policy for the UK. The powers of the Bank of England A brief history of the Bank of England The BoE’s mandate … Continued

Beginner

Trade Nonfarm Payrolls (NFP)

What are Nonfarm Payrolls? Nonfarm Payrolls (NFP) data show the headline jobs growth for the US. It is announced monthly as part of the broader US Employment Situation report which is an update on the state of the US labour market. Here we show a more detailed assessment of what Nonfarm Payrolls are. Financial markets … Continued

Beginner

Stagflation Explained

What is Stagflation? Stagflation is a term used to describe a specific state of an economy. It is a combination of two words: stagnation and inflation. For an economy to be experiencing “stagflation”, there are certain criteria that need to be occurring: When all of the conditions occur simultaneously, then the economy can be said … Continued

Beginner

Producer Price Index (PPI) Explained

What is the Producer Price Index? The Producer Price Index (abbreviated to PPI) is an inflation measure that looks at the change over time in the prices experienced by domestic producers. The PPI is primarily the change in prices paid to producers for their output of goods and services. The data is compiled from thousands … Continued

Beginner

Purchasing Managers’ Index (PMI) Explained

What is the PMI? The PMI or Purchasing Managers’ Index compiles a survey of economic trends for a country in sectors such as manufacturing and services. The data is released monthly and is one of the first and most current data sets to be released. The composite PMI compiles the surveys to give an outlook … Continued

Beginner

What Is An Economic Calendar?

An economic calendar is a timetable that is usually arranged in chronological order, similar to a normal calendar, in time and date order, showing important events that could impact financial markets. Economic calendars display upcoming data that is due to be released and also previous economic data, that has already been published. This data is … Continued

Beginner

Inflation Explained

What is inflation? At a most basic level, inflation is the rise in prices over time. It also represents the change in purchasing power. As inflation rises, the purchasing power to buy a basket of goods will decline. One unit of currency will be able to buy fewer goods or services than it did previously. … Continued

Beginner

Hawkish Explained

The term “hawkish” is applied to any person or organisation that approaches a situation with an aggressive response. For financial markets, the term tends to mostly be associated with central banks and their outlook for monetary policy. A central bank (or central banker) is hawkish if its response to an overheating economy is to use … Continued

Beginner

What is fundamental analysis?

Fundamental analysis is an approach to analysing global financial markets that draws on the examination of the innate or intrinsic value of an asset or security and any factors that could impact that value, both now and in the future. These fundamental factors could be bigger picture factors, which would include macroeconomic elements, for example … Continued

Beginner

Earnings Season Explained

What is Earnings Season? “Earnings Season” is a period when publically traded companies announce their results (how the company is performing). There are four earnings seasons per year which is why it is also often referred to as “Quarterly Earnings Season”. In the US, companies tend to have similar period end dates and also tend … Continued

Beginner

Dovish Explained

The term “dovish” is applied to any person or organisation that approaches a situation with a passive response. In financial markets, the term dovish tends to be associated with central banks and their outlook for monetary policy. A dovish central bank (or central banker) uses easy monetary policy in response to a low or negative … Continued

Beginner

Consumer Sentiment Explained

What is consumer sentiment? Consumer sentiment is a measure of the health of an economy from the perspective of the consumer. It is a survey of how optimistic consumers feel about the health of their finances and the economy as a whole. As an economy matures, consumer spending becomes an increasingly important component of the … Continued

Beginner

Understanding tier-one data can be crucial for traders

There are many ways to trade financial markets. Some traders get their signals from fundamental data, some use technical analysis. However, some traders trade newsflow and economic data. Understanding the influence of the most important events on the economic calendar (known as tier-one data) can have a decisive impact on the profitability of traders that … Continued

Beginner

10 Largest Stock Market Crashes Of All Time

Drops in the stock market are significant, not only to us as traders looking to avoid losses or short stocks, but also to the market as a whole. These drops usually occur due to a large negative piece of news or situations that causes investors to act out fear, changing the financial outlook of the … Continued

Beginner

Top Ten Valued Sports Teams in 2023

Why the explosion in the valuation of sports teams? Sports are widely popular, attracting billions globally as both entertainment and social events. Teams’ values have risen rapidly in recent decades, with the world’s top 50 being worth 30% more than the previous year, the largest increase in the last five years. This growth is fueled … Continued

Beginner

The History of the Pound

In this article we are going to look at the British Pound, the world’s oldest, still used currency. We will explore the Pound in a historical context, looking at its roots in the Forex market, we will follow the Pound into the modern era and on into the recent Brexit saga. We will also look … Continued

Beginner

Financial Documentaries and Docuseries that are Streaming Now

When done well, documentaries and docuseries are efficient and enjoyable ways of absorbing key information. Financial documentaries and docuseries are good ways of gaining greater insight into certain aspects of the financial system. We have compiled a list of some of the best documentaries and docuseries streaming now that you can watch to improve your … Continued

Expert

Hawk / Dove Sheet

Here we present the Hawk / Dove sheet, an explanation of the terminology as well as the implications on forex trading and how it is used in fundamental analysis. Hawkish and Dovish HawkishA Hawk is a term originally used in economics to describe economists or Central Bankers who are more concerned with potential recession from … Continued

Intermediate

Supply Chains: Global to Local

Since the 1960’s supply chains have gone global Cost control and profitability were key drivers Coronavirus has crashed the global economy There is a new drive to build local chains In the traditional teaching of economic theory, the argument suggests that global GDP will increase when the principle of comparative advantage [1] is applied by … Continued

Beginner

Top 10 Trading and Investing Books

Education, education, education! There are two key aspects too improving yourself in any given venture, whether in sport, in business, in your personal life and certainly when it comes to trading and investing. And the first is educating yourself in whatever you are trying to achieve. The second is to then practice all that you … Continued

Beginner

Top 10 Trading Movies

Financial markets have always been dramatic, full of fear and greed, disaster and redemption, tragedy and comedy, creativity and stupidity! And this makes for great cinema and has attracted Hollywood over the years. Many movies portray the individual the market participants, the traders, in a somewhat negative way, the villains of the film, with incredible … Continued

Intermediate

Solving the Banking crisis is critical for global economic fortunes

OECD has a gloomy economic outlook for 2019 and 2020 The only inflation is in financial assets It is time to put all banks through a series of radical stress tests and let the weak fail The required reforms do not include nationalising the banking system The Organisation for Economic Cooperation and Development (OECD) recently … Continued

Beginner

Top Ten Economic Data Points from the US

Here at FX Explained we have looked at the importance of macroeconomic data on domestic economies in our educational video and article Fundamental Analysis, in our Master Academy series. This “big picture” data can provide an insight into the overall state of a domestic economy and assists traders and investors in their decision making processes … Continued

Intermediate

Central bankers have the whole world in their hands

The world economy is slowing President Trump is driving a trade war The Eurozone is suffering from fading growth and confidence The writing is on the wall as far as the yield curve is concerned Be in no doubt, the world’s financial markets are in a funk as bond yields race to a bottom that … Continued

Beginner

Stock Market Indices

In this Master Academy educational video and article, we are looking at Stock Market Indices. In this article we will look at: What is a Stock Market Index? What are the types of Indices? How are they calculated? Stock Market Index Examples What is a Stock Market Index? A Stock Market Index is a weighted … Continued

Beginner

Fundamental vs. Technical Analysis

In this Master Academy educational video and article, we are looking at the basics of the different approaches to analysing financial markets that come under the titles Fundamental Analysis and Technical Analysis. Fundamental Analysis There are FOUR subcategories that come under the banner of Fundamental Analysis: Macroeconomic Data Analysis Microeconomic Analysis and Corporate Data Central … Continued

Beginner

What are the FAANG Stocks?

The upgraded acronym FAANG is a development of the original acronym, FANG, which was proposed by Jim Cramer on CNBC back in 2013. FAANG stands for: Facebook (FB) Amazon (AMZN) Apple (AAPL) Netflix (NFLX) and Alphabet (GOOG) (parent company of Google) These are five of the most popular and strongly performing technology shares in the … Continued

Beginner

Trading Terms

In this video and complementary article, we are looking at some basic trading term used in financial markets trading. Buy and Sell/ Long and Short Bull and Bear/ Bullish and Bearish Risk On and Risk Off Risk On Risk Off

Beginner

Asset Classes

In this article and accompanying video we are looking at the different asset classes that investors and traders can invest in and trade. The four main asset classes we are going to look at are: Equities, stocks, shares (including indices, or averages) Bonds (Government and Corporate) Commodities Foreign Exchange (Forex, FX and currencies) Equities, stocks, … Continued

Expert

Sovereign Rating Sheet

A credit rating is the assessment of the credit risk of a potential borrower or debtor. Primarily this focuses on the capacity to make repayment of the debt, and therefore implicitly a prediction of the probability or possibility of the debtor not repaying (or defaulting). Sovereign Debt Ratings are a form of credit rating, but … Continued