OpEd With RR👨🏫:ft @Paradox_y1 epi1
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2 weeks back we announced the beginning of our Macro Economics series written by analyst Paradoxy & today we are bringing you guys episode 1 which is EXCLUSIVELY available for the Members Library only!
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Introduction 🪄
Hello and welcome to the first official episode of OpEd With RR.
In this article, I will be covering the basic and most common terminology used in the topic/conversations including the macroeconomy and from there we will move to cover this week’s news and the impacts we can expect to see on the market.
Lastly, I’ll cover the events you need to watch out for in the next few weeks so you can make informed decisions when it comes to developing a strategy with your capital.
The Words/Phrases You Might Hear Me Use Often📍
This will almost be a bible of all things I need you guys to remember for me so that we can get right into the depth of my knowledge. If I can guarantee/have evidence of a “work bank” it makes it easier for me to get into more advanced areas of analysis.
Definitions of terms and acronyms:
FOMC — This is the Federal Open Market Committee. Their job is to make the decisions regarding the monetary policy for the USA. I.e Interest rates and balance sheet👨💻
FED — This is what the Federal Reserve is often referred to as. This is the central bank of the USA, it is divided up into 12 smaller Federal reserve banks across multiple states (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco). Each bank has its president and all of them are under the Chair (president of all the FED presidents) of the Federal reserve of the United States — Jerome Powell.👨⚖️
CPI — This is the consumer price index. This is the main metric that is used to measure inflation. it’s released 1 month later — September’s data would be released in October and so on — it is made up of a basket of common consumer goods that are all allocated a percentage of the whole figure or a ‘weight’ and then we use this to measure inflation by looking at the total price of those goods in one month and comparing them to the next month. This is the most used figure as it directly highlights the change in the cost of consumer living.🔢
Interest rate — The cost of borrowing. This is that added % you pay when repaying a loan of some sort (if you’re the borrower) or receiving money back (if you’re the lender). lower interest rates = economy will be up trending (people have more money to use), higher interest rates = economy down trending 9 people have less money to use). The central banks will shift this rate depending on the state of the economy to benefit economic health, this is then passed on to consumers as commercial banks will need to raise their rates to keep up also.📈
Inflation — Increase in the price of goods💲
DXY or U.S. Dollar index — This is a measure of the value of the US dollar relative to a weighted index of other currencies (Euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona and the swiss franc). This is the main metric used to measure the value of the US Dollar.💵
That’s the main list you need, any others I refer to in my articles will be defined as and when I mention them.
Now on to this week’s news events🗓
On Tuesday, we had the Consumer Price Index (CPI) data released. With all data releases the market will have a consensus or general expectation of the result, which is the ‘priced in’ (market moves price to align with the expectations).
The market predicted the CPI figure month on month (MoM) to be -0.1% for August based on the heavy decline in oil and gas prices, ( Oil fell 20% from July to August and 30% from June to today).
Shockingly for the markets, CPI inflation data MoM came out +0.1%, this triggered a massive drop in the stock market worth roughly $1.5 trillion and a $109 billion crash in crypto, markets have now settled and are attempting to recover.
This CPI result was caused by spikes in Rent (which is almost 33% of CPI), food and healthcare, this highlights the dire state the USA is in economically which will only get worse before it gets better.
Results like this can tend to cause panic in the market as the FED will base its decisions on data like this to treat the wounds in the economy.
Upcoming Metrics To Keep An Eye On👀
Federal Open Market Committee (FOMC) Meeting (21/09/22) — This is when all 12 of the federal reserve presidents meet with the Chair and discuss the latest economic data and make decisions about monetary policy in the best interests of the USA. Usually, anything said in these meetings tends to cause a knock-on effect on the markets.
In this meeting, they will take this CPI result into account and they’re likely to raise interest rates by 75 basis points (BPS) — this is just another way of saying 0.01% — This will bring the current rate to 3–3.25% which is the highest it’s been since 2019. — VERY IMPORTANT⛔️
You can see market expectations using the fed watch tool online here 👉https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Unemployment Rate (07/10/22) — this measures the number of people not in work and/or looking for work but can’t find it. This is key as employment is a key part of economic health as the labour market is the core of the economy.
This has stayed pretty stable at 3.5% mostly but September had a spike to 3.7% so this will be an interesting metric to watch. When unemployment starts trending up violently, this is indicative of a worsening economy.
Written By Paradoxy; https://twitter.com/paradox_y1
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