Page 293 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Employment Data
Most countries release data about the number of people that currently are employed within that
economy. In the U.S., this data is known as non-farm payrolls and is released the first Friday of
the month by the Bureau of Labour Statistics. In most cases, strong increases in employment
signal that a country enjoys a prosperous economy, while decreases are a sign of potential
contraction. If a country has gone recently through economic troubles, strong employment data
could send the currency higher because it is a sign of economic health and recovery. On the other
hand, high employment can also lead to inflation, so this data could send the currency downward.
In other words, economic data and the movement of currency will often depend on the
circumstances that exist when the data is released.
Interest Rates
As was seen with some of the economic theories, interest rates are a major focus in the forex
market. The most focus by market participants, in terms of interest rates, is placed on the
country’s central bank changes of its bank rate, which is used to adjust monetary supply and
institute the country’s monetary policy. In the U.S., the Federal Open Market Committee (FOMC)
determines the bank rate, or the rate at which commercial banks can borrow and lend to the U.S.
Treasury.

Notes The FOMC meets eight times a year to make decisions on whether to raise, lower or
leave the bank rate the same; and each meeting, along with the minutes, is a point of focus.
Inflation
Inflation data measures the increases and decreases of price levels over a period of time. Due to
the sheer amount of goods and services within an economy, a basket of goods and services is
used to measure changes in prices. Price increases are a sign of inflation, which suggests that the
country will see its currency depreciate. In the U.S., inflation data is shown in the Consumer
Price Index, which is released on a monthly basis by the Bureau of Labour Statistics.

Gross Domestic Product
The gross domestic product of a country is a measure of all of the finished goods and services
that a country generated during a given period. The GDP calculation is split into four categories:
private consumption, government spending, business spending and total net exports. GDP is
considered the best overall measure of the health of a country’s economy, with GDP increases
signalling economic growth. The healthier a country’s economy is, the more attractive it is to
foreign investors, which in turn can often lead to increases in the value of its currency, as money
moves into the country. In the U.S., this data is released by the Bureau of Economic Analysis once
a month in the third or fourth quarter of the month.

Retail Sales
Retail sales data measures the amount of sales that retailers make during the period, reflecting
consumer spending. The measure itself doesn’t look at all stores, but, similar to GDP, uses a
group of stores of varying types to get an idea of consumer spending. This measure also gives
market participants an idea of the strength of the economy, where increased spending signals a
strong economy. In the U.S., the Department of Commerce releases data on retail sales around
the middle of the month.

Durable Goods
The data for durable goods (those with a lifespan of more than three years) measures the amount
of manufactured goods that are ordered, shipped and unfilled for the time period. These goods

288 LOVELY PROFESSIONAL UNIVERSITY