Great Britain: Consumer Price Index

Economic Calendar


The British Consumer Price Index (CPI)

A consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for consumption by most households.  For the British Consumer Price Index, the entire UK is taken into account.  It is calculated using the same methodology (HICP) developed by the European Union’s statistical agency (Eurostat). The British CPI is the Bank of England’s target inflation measure.

Why Is The British CPI Important?

Out of all inflation indicators, The consumer price index (CPI) is the most widely followed. An investor or trader who understands how inflation influences the markets will have a tremendous advantage over other investors and traders.

In countries that make up the UK (England, Scotland, Wales, Northern Ireland), where monetary policy decisions rely upon the central bank’s inflation target, the rate of inflation directly affects all interest rates charged to businesses and consumers.

Old Map (35)

Remember, inflation is an increase in the overall level of prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence markets.

Inflation (along with risk premiums) basically explain how interest rates are set on everything from mortgages, auto loans and Treasury Instruments (bills, notes and bonds). As the expectations on inflation change, the markets adjust interest rates. The effect ripples across all asset classes:

  • stocks (equities),
  • bonds (fixed income),
  • and commodities.

Everyone pays close attention to inflation trends.  By tracking the change in inflation investors can anticipate how different types of investments will perform.

Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits leading to more tax revenue for government expenditure.

For monetary policy, the Bank of England (BoE) generally follows the annual change in the consumer price index which is calculated using the European Union’s Eurostat methodology so that inflation numbers are comparable across the EU.

UK Office For National Statistics


The Federal Open Market Committee

FOMC Interest Rate Announcements

What Is The Federal Open Market Committee (FOMC)

The FOMC is the policy-making arm of the U.S. Federal Reserve. The FOMC determines short-term interest rates in the U.S. by manipulating the overnight interest rate that banks pay each other for borrowing reserves.  Banks borrow reserves when a bank has a shortfall in required reserves. This overnight rate is the fed funds rate.

The Federal Open Market Committee also determines whether the Fed should manipulate liquidity in credit markets by other means. The Fed announces its policy decision (whether to change the fed funds target rate or not) at the end of each FOMC meeting. This is the FOMC announcement.  It also includes brief comments on the FOMC’s views on the economy and how many FOMC members voted for and against the policy decision.

Since the last recession, the statement also includes information on Fed purchases of assets, aka “quantitative easing”, which affects long-term interest rates.

Why Is The FOMC announcement important?

The Fed determines interest rate policy at FOMC meetings.  A FOMC meeting happens approximately every six weeks.  The FOMC meetings are the single most influential event in the markets.  For weeks in advance, market participants speculate about the outcome of each meeting. If the outcome is different from expectations, the impact on the markets can be significant.

FOMC The Fed Funds Rate
Effects Of FOMC Announcements Reach Far And Wide.

Why Is The Federal Funds Rate Important?

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates….All. Other. Rates.

A change in the fed funds rate (the lending rate banks charge each other for the use of overnight funds) affects all other interest rates from Treasury bonds to mortgage loans. It also changes the flow of  investment dollars. When bonds yield 5 percent, they will take more investment away from equities than when they only yield 3 percent.

Interest rates impact the economy in various ways. Higher interest rates tend to slow economic activity; lower interest rates tend to stimulate economic activity while at the same time erode pension fund returns and consumer savings. Either way, interest rates influence consumer sales. In the consumer sector, fewer homes or cars will be purchased when interest rates rise.

Furthermore, interest expense is a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits.  When interest expenses increase, net profit decreases which lowers corporate profit. The bottom line is that higher interest rates are bearish for equities.  While a low interest rate environment is bullish for equities AND juices up government tax revenue.  Get the picture?



U.S. Energy Information Administration Petroleum Status Report

Economic Calendar


What is the EIA Petroleum Status Report?

The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad.  Inventory levels help us forecast the direction of prices for petroleum products.

Boisseauc 1646
Crude oil is an important global commodity. World map, Boisseau circa 1646

Why is the EIA Petroleum Status Report Important?

The prices of petrol products are determined by supply and quantity demanded – just like most other goods and services.

During periods of strong economic growth, we expect demand to be robust. If inventory supply is low, this will eventually lead to an increase in crude oil pricing.  Or, price increases for a wide variety of petroleum products such as gasoline or heating oil.

  • If inventories are high and rising in an environment of strong demand, prices may remain in equilibrium.
  • In a slow economic environment, demand for crude oil may fall.  And, If inventories are rising, this may push down oil prices.

Crude oil, priced in USD, is an important commodity in the global market. Prices fluctuate depending on global supply and demand conditions. Since oil is such an important part of national economies, it contributes to the direction of inflation.  In the U.S., consumer prices have stabilized whenever oil prices have fallen, but have accelerated when oil prices have risen.

The EIA report will become even more relevant if the Shanghai Futures Exchange (SHFE) subsidiary Shanghai International Energy Exchange (INE), initiates a new oil futures contract denominated in Yuan.


ISM Manufacturing Composite Index

Always Check The Economic Calendar


What Is The Institute For Supply Management (ISM) Manufacturing Composite Index?

The manufacturing composite index from the Institute For Supply Management is a diffusion index.  It is calculated from five sub-components of a monthly survey; there are eleven sub-components in total.  The survey respondents are purchasing managers from roughly 300 manufacturing firms nationwide.

The entire survey asks purchasing managers about:

  • general direction of production
  • new orders
  • order backlogs
  • their own firm’s inventories
  • customer inventories
  • employment
  • supplier deliveries
  • exports & imports
  • prices

The five components of the composite index are:

  • new orders
  • production
  • employment
  • supplier deliveries
  • their own firm’s inventories

Note that the five components are equally weighted. The questions are qualitative (not quantitative, so no specific numbers).  Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.


The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is solidified by the fact that it is available very early in the month and is not subject to revision  –this lowers the probability of reporting shenanigans.

Investors need to keep their fingers on changes in the economy because it dictates how their investments will perform. Tracking economic data such as ISM manufacturing lets investors know what the economic backdrop is for various markets.

Remember, the stock market likes to see healthy economic growth because that translates to higher corporate profits.  And, the bond market prefers slow growth and is very sensitive to whether the economy is growing too quickly which gives rise to inflationary pressure.

ISM manufacturing data give a detailed look at how busy the manufacturing sector is and where things are headed. Since the manufacturing sector is a major, major source of cyclical variability in the economy, this report has a big influence on the markets.  And remember, it cannot be revised once the number is released.

A few ISM sub-indices provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on these sub-indices to help determine the direction of their interest rate decisions (in case inflation signals are flashing). Since inflation leads the bond market, the bond market is highly sensitive to the data listed in these sub-indexes.

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ISM Manufacturing Correlations

The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market (existing bonds are valued higher when interest rates are expected to fall).

Also, a healthy manufacturing sector, indicated by rising ISM index levels,  increases the expectation of higher corporate earnings and is bullish for the stock market.

The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall.

ISM Manufacturing, What Do The Numbers Mean?

Readings below 50 indicate a shrinking manufacturing sector but overall GDP growth is expected to remain positive until the ISM index falls below 42.5 (based on statistical data through January 2011). Readings between 42.5 and 50 suggest that manufacturing is in decline while GDP is still growing (very slowly).

As mentioned above, the various sub-components contain useful information about manufacturing activity. The production component is related to:

  • industrial production
  • new orders to durable goods orders
  • employment to factory payrolls
  • prices to producer prices
  • export orders to merchandise trade exports
  • import orders to merchandise imports.

Vendor (supplier) deliveries are another important component of report. The more slowly orders are filled and delivered (inventory turnover), the stronger the economic growth and expectation of higher inflation. When orders are filled quickly, it means that producers don’t have as many orders to fill (or there is a supply glut).

The ISM manufacturing composite index and its sub-components may show monthly volatility, so check the three-month average of the monthly levels to spot the trend and calculate the probability of an interest rate change.


Purchasing Managers’ Manufacturing Index (PMI)

Economic Calendar


What is the Purchasing Managers’ Manufacturing Index?

Based on monthly surveys of selected companies, the Purchasing Managers’ Manufacturing Index (PMI) is an advance indication of month-to-month activity in the private sector of the economy. It tracks changes in variables such as output, new orders, stock levels, employment and prices across manufacturing industries.

The final index for the current month is released roughly a week after the flash PMI.

Why is the Purchasing Managers’ Manufacturing Index important?

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. & the Markit PMIs in the U.S., and elsewhere, investors will know what the economic backdrop is for various markets.

  • The stock market likes to see healthy economic growth because that translates to higher corporate profits.
  • The government likes higher corporate profits so it can collect more tax revenue to fund political projects and wars.
  • The bond market prefers slow growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
John Seney, 1721
Map of the New World, John Seney circa 1721

The Markit PMI

The Markit PMI manufacturing data give a detailed look at the manufacturing sector. The manufacturing sector is a major source of cyclical variability in the economy and this report has major influence on the markets. Its sub-indexes provide a picture of orders, output, employment and prices.

  • April 2004, Markit begins collecting monthly U.S. PMI data from a panel of manufacturers in the U.S. electronics goods producing sector.
  • May 2007, Markit’s U.S. PMI research was extended out to cover producers of metal goods.
  • October 2009, Markit’s U.S. Manufacturing PMI survey panel was extended further to cover all areas of U.S. manufacturing activity.

Back data for Markit’s U.S. Manufacturing PMI between May 2007 and September 2009 are an aggregation of data collected from producers of electronic goods and metal goods producers, while data from October 2009 are based on data collected from a panel representing the entire U.S. manufacturing economy.

Markit’s total survey panel comprises over 600 U.S. companies.

Markit Economics PMI Release Dates.


Japanese PMI Composite

Economic Calendar: The Japanese PMI Composite



Japanese Purchasing Managers Index

The Markit Japanese Composite Purchasing Managers Index (Composite PMI) is based on original survey data.  These data are collected from a panel of firms that represent, and are based in, the Japanese manufacturing and service sectors.

The major composite index is composed of two minor indices.  It is a weighted average of the Manufacturing Output Index and the Services Business Activity Index.  These are all based on original survey data collected from a representative panel of over 800 Japanese-based firms that serve Japan’s manufacturing and service sectors. The survey data is collected mid-month.  Survey responses reflect change in the current month compared to the previous month.

Old Map (21)

Is The Japanese PMI Composite Important?

Yes!  PMI Data is an important macroeconomic indicator.  Investors need to keep their finger on the pulse of the economy to form expectations of how various types of investments will perform. By tracking economic data such as the PMI numbers, investors will get a better picture of what the economic backdrop is for the various markets.

  • The stock market likes to see healthy economic growth because that translates to higher corporate profits.
  • Governments like to keep markets inflated because a portion of those corporate profits (and inflated assets) are converted into tax revenue.
  • The bond market prefers slow growth and is extremely sensitive to whether the economy is growing too quickly (inflation).

Click this, list of PMI data


Sails Up

Long The Japanese Yen.


↓ CAD/¥

The global macro picture looks squared away: swap dealers are short CAD and long Yen; institutional managers are actively buying Yen contracts.  Bond activity indicates risk-off verifying ¥ long positioning.  Retail positioning is not optimal and BoJ numbers are due out this week so a wide stop.

The charts show good CCI Divergence on the daily and weekly.  Stop is set north of ¥92.  Position size is a full bell.

Update:  10/01, order triggered; 10/18, closed at +2.4% of margin;


↓ €/¥

Similar global macro factors with institutional managers  actively closing their euro shorts.  CCI divergence on the weekly; stop-loss is set above the weekly high.  A correlated trade so I will be trailing the stop on this pair if it triggers. Risk taken is a 2/3 bell.

Update: 10/01, order triggered;  10/18, stopped out, -1.94% loss on equity

Trader Error:  this trade was held too long, I was away from my laptop and missed the profit target on the morning of 10/16.