Chapter 2: Toolbox of Economic Indicators

The basis of every economic analysis as the foundation of a sound financial market analysis is in all cases the observation of the regularly announced economic indicators. It is more or less the ‘butter and bread’ business of economists and market analysts. For with every publication of macroeconomic data, the picture for the economic assessment of every economist and market analyst can change at least marginally and thus also move the prices on the financial markets. The macroeconomic figures can point more in the direction of a weakening or an acceleration of the economy, which can then lead to a decline or an increase in prices via expected lower or higher demand in consumption and/or investment. Accordingly, central bankers could sooner or later be forced to intervene in accordance with their mandate to support the economy by lowering interest rates or to dampen the economy by raising interest rates, which could have the hoped-for effect of averting a feared deflation or fighting inflation. Every piece of information about the state of the economy is immediately tapped in this regard and this is reflected in the actions of market participants who anticipate a corresponding economic trend and action by the central banks. Consequently, interest rates are likely to fall when economic data are weaker, as investors increasingly exit (cyclically sensitive) equities and invest in supposedly safe government bonds. With stronger economic data, on the other hand, equities are sought, so that often less cyclically sensitive government bonds are sold and the yields of these securities rise.