The introduction to news trading

The introduction to news trading
Table Content
What’s up with news trading?
How to analyze news for trading
1. The nonfarm payroll report
An example of NFP report data
2. The unemployment rate report
3. The average hourly earnings report
4. And, finally, the participation number
Last thoughts

There’s an old joke “that economists are too smart for their own good but not smart for anyone else’s.” Sometimes that’s true, but not in amana’s “Learn” section. Today, we’ll turn that joke on its head so that you can know more about news trading and get smarter about the global economy. So, without further delay, let’s dive into the news trading strategy!

What’s up with news trading?

News trading has become increasingly popular among forex traders because it offers countless opportunities and keeps them up to date. However, not all macroeconomic news events have a similar impact.

If you’ve opened an economic calendar, you can see which news has a more significant impact on the market and what information you can easily ignore. So, out of the hundreds of news releases, how do you know which news events you should watch?

How to analyze news for trading

There’s a lot of news out there that impacts the market. Let’s start with one of the most critical releases - The jobs report!

- Jobs are important. That’s why, if you’re an investor or a trader, the most important day of the month should be the first Friday of the month, AKA the day the jobs report hits the markets. So, let’s take a look at the most impactful job reports out there.

1. The nonfarm payroll report

Because it simply shows the health of the economy. That’s why the numbers in the jobs report impact foreign exchange rates, bond rates, and stock prices.

First, we have the Nonfarm Payroll (NFP) report, which shows the number of jobs created before the given month. This report is released every first Friday of the month at 8:30 eastern time, so if you’re living in the UAE, the release will hit the news at 4:30 afternoon.

The NFP report shows the total number of paid workers in the US across all industries except for people working in agriculture (because that’s a seasonal job), the federal government, private households, and people working in NGOs.

The Bureau of Labor Statistics measures the NFP report. 

An example of NFP report data

The September jobs report for 2022 will be released at the beginning of October. It’ll show the number of net new jobs created in September, compared to August. Let’s say the number is 350,000 in September. That means 350,000 more people were working in September than in August. It’s that simple! If that were the case, that’d be good news for the economy, and it could increase stock prices. 

A critical note to add here is that if this number comes out much higher than the previous month, this could lead to inflation. That would NOT be good news for investors since the Federal Reserve (the Fed) would raise interest rates.

On the other hand, if the number is negative 350,000, that means that 350,000 fewer people were working in September than in August, which would be terrible news for the economy and could send stock prices down sharply.

2. The unemployment rate report

As the name suggests, the unemployment rate report shows the change in the percentage of people who could be part of the labour force but are currently unemployed. It’s released quarterly and yearly. How is this report calculated?

The unemployment rate report is calculated by dividing the number of people unemployed by the number of people in the labour force * 100.

Typically, the number increases during a recession and decreases during an expansion.

Let’s say it goes from 3.5% to 3.7%. A higher rate would mean that the economy cannot generate enough jobs for people.

Usually, unemployment is caused by various reasons, such as high-interest rates, global recession, financial crises or war. So, the lower the number is, the better for the economy and investors.

3. The average hourly earnings report

This percentage shows how much people’s average hourly wages increased from the previous year. If this number is up a lot, like 3% or more, it can be a big concern for financial markets because wage inflation will likely require the US Central Bank to raise interest rates.

4. And, finally, the participation number 

The last on our list is the labor force participation rate. This report indicates the percentage of all people of working age who are actively job hunting, as well as those who are currently employed.

The rate varies over time, based on social, demographic, and economic trends, and it also differs between countries.

So for example, the participation rate in the United States rose in August 2022 to 62.4%, the highest it’s been since March.

Last thoughts

So, those are the most significant reports you should watch out for in the news when trading in the financial markets. If you’d like to know more details about these numbers, you may visit the Bureau of Labor Statistics website: BLS.GOVThank you for joining us today, and don’t forget to download our trading app!

with amana you can learn about all sorts of trading like active trading and day trading

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