Monday, February 9, 2015

Non-Farm Payrolls are not the only Forex market movers | PMIs: some are more watched than others

As is usual on the first Friday of every month, last Friday saw the release of the US Non-Farm Payrolls report. This is always eagerly awaited by Forex market participants, and others, as the employment statistics are believed to be one of the most important factors taken into account by the Federal Reserve in its deliberations on monetary policy. As such, it is regarded as a leading indicator of how the US currency, in particular, will behave. The short-term volatility on its release is regarded by most as a good reason to stay out of the market in the period just prior to and after the announcement.

But there are other economic indicators that can move the market. Some are more important than others. Gross Domestic Product (GDP), for example, is important, for reasons that should be obvious, as are Consumer Price Inflation (CPI) figures.

While NFPs and GDP figures are produced by government agencies for the most part, there are a number of important indicators that are released by private bodies. Foremost amongst these are the various Purchasing Managers’ Indexes. These are arrived at by the Institute for Supply Management (ISM), in the USA, and the Markit organisation, in other countries, polling a selection of managers in the private sector who have responsibility for procurement within their companies. They ask them a standard set of questions that are designed to determine the trend in the purchasing spend for the economy concerned.

Some PMIs are more watched than others.

Whoever is doing the polling, there are typically three different categories of PMI: manufacturing, services and construction. Depending on the economy they refer to, some of them will be given more weight by market participants than others. For example, the chart at the top shows the reaction of Cable, or the GDPUSD currency pair, to the release of the construction PMI for the UK last week (Feb 3rd), which was regarded as positive for the Pound Sterling. The services PMI outcome would also be seen as important but, from the reaction of the market, it would seem that Britain is fast becoming a post-manufacturing economy.

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