It’s likely you’ve been told not to trade when an economic announcement is made - and for 15 minutes afterwards. It’s also likely that you look at an economic calendar to figure out when to NOT trade - but ignore it other than that.
These announcements and other economic related news (like the recent Trump tariff announcements) have the power to instantly change the direction and participation in the market for an extended period of time. If you were waiting for a technical setup, it’s likely that the announcement invalidated it.
At the same time, the announcements bring in new opportunities that traders rarely exploit because they think it requires an in-depth knowledge of economics. In this article, we’ll dispel that myth and look at how simple it is to understand the responses to various types of US Markets.
That way, if your market reacts to an event, you consider that in your assessment of trading in that direction.
Let’s review the relationship between the main markets first.
The “trick” is to understand how seemingly ‘unrelated’ news can hit your market. Like interest rates hitting the dollar or oil impacting the stock market.
Note that if I say “a strong X makes Y go down, presume the inverse is the case too.
US Stock Market - Reflects optimism or fear in the US economy.
Impacts:
US Dollar - Has both global and domestic impact.
Impacts:
Interest Rates - Set by the FED - used like a power up/down button for the US economy
Impacts:
Energy - Well - Oil mostly, which is driven by geopolitical events as much as local US events. For example if an Oil refinery is attacked in the middle East.
Impacts:
Precious Metals - Gold is considered a “safe haven” and so is a barometer of fear and greed in the markets. In most cases, Gold doesn’t so much impact other markets but is a reflection of them
Relates to:
If we relate it back to economic releases and news in general - both the FOMC (interest rates) and Employment numbers can move the oil market - but the amateur Oil trader might only be paying attention to oil inventories.
The PMI or “Purchasing Managers Index” comes out monthly and tracks new orders and other factors in the manufacturing and service industries.
If orders are up, then that’s good for Stock Prices, which in turn is positive for energy prices and negative for Gold.
The thing to watch with economic numbers is how far off they are from their estimated value or from the previous value if no estimate exists. Note also that some (red below) tend to have higher impact than others (green below)
economic release calendar in Jigsaw daytradr and Journalytix
As you can see the ISM PMI is 53.5 (which means more orders etc) compared to an estimate of 52.6 and a previous month of 52.8 - all good for stocks. Here’s a list of the top 10 releases, so you can get a feel for how they can impact your market.
On the left we have the event and what it means for other markets when the number is higher than expected. Note that the “S” implies a strong relationship and “W” implies a weak one.
This might seem a lot to remember - but it’s mostly common sense. The key is that an economic event CAN dramatically change the ‘personality’ of your market.
They are an essential piece of the puzzle when it comes to understanding the evolving story of the day in the markets. Taking advantage of this knowledge is way better than what most do - ignore it completely.