The Federal Reserve is arguably the most commonly watched financial body in the world, and there are emerging clues that more interest rate hikes will be seen in coming months. This outlook is based on the assumption that the US economy is showing steady growth prospects and a stable labor market that should support GDP expectations going forward.
Stock Markets: Investing in the Dow Jones Industrial Average
The stock markets tend to be highly stable in most cases, and one of the best examples of an asset that exemplifies these characteristics is the Dow Jones Industrial Average. This stock benchmark tracks the value of 30 large-cap (or blue-chip) companies, and this is one of the most commonly referenced instruments when investors are monitoring developments in the financial news.
In fact, many financial media outlets will discuss whether the market is “down” or “up” on the day, and these phrases will be used to describe the activity that is being seen in the Dow stock market index. One of the most common ways investors invest in the Dow is through the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA), which is an exchange-traded fund that tracks the value of the Dow stock benchmark.
Stock Markets: Investing in the S&P 500
The stock markets have an excellent history in terms of the ways they have generated strong returns for investors over the last 100 years. Some instruments have been more successful than others, of course, but there are not many benchmarks that have performed better than the S&P 500.
The S&P 500 stock index tracks the value of 500 multinational companies that trade on the New York Stock Exchange (NYSE). The stock index is often viewed as one of the most diversified instruments in the world and it is typically associated with stable returns of roughly 10-12% annually. There are not many trading instruments that have returned this type of value for investors in a consistent way. So the S&P 500 is something that should be considered by conservative investors that do not want to undertake excessive risk or move in and out of market positions on a daily basis.
Financial Markets: Gold and Silver Assets
Over the course of the history of the financial markets, gold assets and silver assets have established a firm stronghold. Perhaps somewhat less important in today’s trading environments, both gold and silver are still actively used by investors as a store of value, a hedge against inflation, and as a protective asset in times of economic uncertainty. With national debt growing in many of the world’s largest economies, it is still clear that gold and silver are here to stay in terms of their positions in the financial markets.
Gold assets can be traded in many forms. Instruments like the SPDR Gold Trust ETF (NYSEARCA:GLD) and the iShares Silver Trust ETF (NYSEARCA:SLV) are popular choices for precious metals investors. Gold and silver can also be traded in their physical form, as gold coins, gold bars, and gold bullion are still hugely popular both in the United States and around the world.
World Currencies: Market Trading the US Dollar
When we are looking at the world’s most important financial assets, one of the first topics that come to mind is the US Dollar. The Dollar is sometimes referred to as the ‘greenback’ and it tracks the monetary value of assets in the United States. The Dollar is also viewed as the world reserve currency, as many nations around the world hold US Dollars as a store of value and as protection against volatility and unpredictability in the globe’s financial markets.
The US Dollar is typically governed by the level of risk that is present in the global markets and in the annual GDP figures that are posted within the country. The Federal Reserve is also an important component in terms of the way the currency is viewed by the market, as any suggestion that the central bank is ready to raise interest will generally bring buyers back into the currency using forex pairs like the EUR/USD or the USD/JPY.
Financial Markets: Non-Farm Payrolls Reports
Financial markets investors are almost always interested in the results seen in the monthly non-farm payrolls report out of the US. This report outlines the number of jobs created in the United States over the previous month. There are not many economic numbers that have a larger influence on the financial markets, so it is always important for investors to be aware of this report as it draws closer on the economic data calendar.
The NFP economic report is released by the Bureau of Labor Statistics (BLS) and it usually is seen on a Friday at the end of the month (or at the beginning of the following month). The national unemployment figures are released at the same time, so these days will give investors a solid indication of what is happening in the US labor markets at any given moment. On average, these numbers will come in around 160,000 so anything above or below this figure should indicate the broader trend direction.
Economic Data: ISM Manufacturing Reports
Any assessment of a nation’s economy will require an understanding of the strength or weakness in its manufacturing data. This type of economic data can be great for determining whether or not a country’s annual GDP numbers will be impressive and meet earlier expectations. When a major economy like the United States or China underperforms in manufacturing, it can have major ripple effects in the world economy. This can send stock markets lower, precious metals higher, and lead to major volatility in the forex trading market.
One of the most important indicators of manufacturing in the United States are the reports released Institute for Supply Management (ISM). The monthly ISM reports outline activity in both the Manufacturing and the Services sectors, which are the major components of most national economies. In the United States, the services sector makes up roughly 70% of the economy. But the ISM manufacturing data is still critical in determining the growth trends that are going to be possible going forward.
Economic Reports: Consumer Inflation and Producer Infaltion
There are many market forces that influence stocks, commodities, and currency prices. This is why investors will generally look at an economic calendar in order to see which factors are likely to change trends next in the financial markets. One of the most important economic reports relates to consumer inflation, which is often referred to as the Consumer Price Index (CPI). This is typically accompanied by inflation measures at the manufacturing and supply level, which is generally referred to as the Producer Price Index (PPI).
Inflation reports are highly critical for a number of reasons. First is the fact that central banks like the Federal Reserve and European Central Bank (ECB) are very concerned about the average price levels that are seen for consumers. If price action is rising quickly in basic household items, it can be very disruptive to a nation’s economy. This is why major changes in inflation tend to heavily impact foreign exchange (forex) prices.
Financial Markets: What is an Economic Calendar?
Financial markets investors have several important tools at their disposal when we are viewing the major catalysts that are likely to drive asset prices. Major data reports are released on a set schedule and this is often when market volatility will increase in stocks, commodities, and currencies. These economic calendar reports can include things like inflation, jobs additions, unemployment, manufacturing productivity, and Gross Domestic Product (GDP) in various nations. These are all important geopolitical events that move markets and create opportunities for financial markets investors.
So when we look at the economic calendar, it is possible for investors to maneuver in the market in ways that are both protective and advantageous. Of course, there are many geopolitical events (wars, surprise elections, etc.) that can impact market prices. But the reality is that the majority of the financial market activity is based on what is seen in regional economic calendars that influence the outlook for specific assets.
Trade War: What it Means and How Likely is it?
Trade War: What it Means and How Likely is it?
With Donald Trump’s presidential campaign characterized by a number of high-profile attacks on China, there is a fear that the U.S. will apply punitive taxes on Chinese goods which could eventually escalate into a trade war. Bearing in mind the size of these two economies the effects of this could be damaging not just for the countries involved, but for the whole global economy.
This fear rests predominantly on Trump’s claims that the U.S. could put tariffs as high as 45% on Chinese imports, which would most likely be met by similar tariffs on the Chinese side. This would cause Chinese exports worth $483 billion (in 2015) and U.S. exports of $116 billion respectively, to collapse.
However, this would only be the start of it. There is the obvious issue, that the increase in the cost of imports would suppress spending. Increased tariffs would amount to what would essentially be a tax on U.S. companies and households. Beyond that there are fears of what a trade war could do to interdependent supply chains.
For example, 35% of China’s exports in 2015 was what is known as ‘processing trade’, whereby China imports the components and then assembles them for export. This means that $169 billion of Chinese exports to the U.S. actually represents imports from other countries such as South Korea, Japan and Taiwan. This could have major knock-on effects for the global economy. What is more, having spent years developing the existing international trade regimes, the dismantling of these would create much confusion and uncertainty.
This is because much of Trump’s protectionist plans contravene World Trade Organization (WTO) regulations. U.S. firms could be particularly vulnerable to an increase in tariffs. Bearing in mind that around one-half off U.S. imports from China are capital goods and intermediate goods, used by American companies for production; domestic U.S. firms may find themselves having to pay more and thus losing competitiveness. This would be damaging for U.S. firms which have played a key role in driving innovation.
A trade war would be damaging to the global economy, but there are doubts as to whether it is likely to happen. Firstly, one of Trump’s claims that China is a currency manipulator is rather outdated, at least in the way Trump has depicted it. Counter to Trump’s claims, recently China has not been devaluing its currency in order to make its exports more competitive, in fact it appears to have been propping up the yuan.
Secondly, Trump may face strong opposition from pro-market Republicans in Congress who are likely to oppose protectionist policies deemed too much. Despite this, the President does have a fair amount of leeway in this regard. The 1974 Trade Act empowers the president to impose tariffs and other sanctions on countries engaged in unfair practices or relating to large balance of payment deficits. What course Trump takes is yet unclear, but what is clear is that a trade war would not be a good thing for the global economy.