I posted this during the Asian time zone, and I’m repeating it here. Before I do that, check this out:
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The core personal spending data is due at 0830 ET and is the focus of attention. You can see the median estimates below in the table.
The ranges for the estimates (their significance is explained below) are:
Core PCE Price Index (MoM)
And for the year/year
- This image is taken from the ForexLive economic data calendar, You can access it here..
- The numbers in the right column are the “previous” result (previous month/quarter as the case may be). The number in the column next to that is the expected consensus average.
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Why is it important to know such ranges?
Data results that fall outside of market expectations tend to move markets more significantly for several reasons:
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Surprise factor: Markets often price their expectations based on past forecasts and trends. When data deviates significantly from these expectations, it creates a surprise effect. This can lead to a rapid revaluation of assets as investors and traders reassess their positions based on new information.
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Psychological Impact: Investors and traders are influenced by psychological factors. Extreme data points can trigger strong emotional reactions, leading to exaggerated market reactions. This can amplify market movements, especially in the short term.
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Reassessment of risk: Unexpected data may lead to a reassessment of risk. If the data performance is significantly below or above expectations, this may change the perceived risk of some investments. For example, better-than-expected economic data may reduce the perceived risk of a stock investment, leading to a market rally.
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Automated Trading: In today’s markets, a large portion of trading is done by algorithms. These automated systems often have pre-defined conditions or limits, which when triggered by unexpected data can lead to large-scale buying or selling.
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Impact on monetary and fiscal policy: Data that deviates significantly from expectations can influence central bank and government policy. For example, in the case of inflation data due out today, weaker-than-expected data will fuel speculation that the Federal Open Market Committee (FOMC) will cut interest rates sooner and more widely. A stronger (i.e. higher) CPI report could dampen these expectations.
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Liquidity and Market Depth: In some cases, extreme data points can impact market liquidity. If the data is unexpected enough, it can create a temporary imbalance between buyers and sellers, causing larger market movements until a new equilibrium is found.
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Chain Reactions and Correlations: Financial markets are interconnected. A large move in one market or asset class due to unexpected data can lead to correlated moves in other markets, amplifying the overall market impact.