Euro fundamental indicators

The fundamental indicators shown below are of high importance for the euro, however, since the EMU (Economic and Monetary Union, the countries within the European Union which share a common market and a single currency, the euro) is composed of 17 countries, it is essential to be aware of major political and economic events of the member countries, such as changes in GDP, unemployment, and inflation. The major economies of the EMU are Germany, France, and Italy, for which, in addition to general economic data from the EMU, economic information from these three countries have the most relevance for the euro.

Gross Domestic Product Preview

The preliminary GDP is published once the Eurostat has accumulated information of a sufficient number of countries to provide an adequate estimate. Generally, this indicator includes Germany, France, and Holland. In the case of Italy, it is not included in the initial release, this country is only added to the final figure. The totals which are calculated annually for the EU and EMU are a simple sum of the GDP of all countries. In the case of quarterly estimates, before the sum was more complex, as some countries like Greece and Ireland still did not generate full details of quarterly national accounts. This indicator is taken as a sign of the general state of the European economy.

Industrial production in Germany

Data on industrial production in Germany are seasonally adjusted and are broken down into four categories: manufacturing, mining, energy, and construction. In turn, total manufacturing is comprised of four main product groups: commodities and production, capital goods, durable consumer goods, and non-durable consumer goods. Usually, the market tends to follow carefully the rate of change and the monthly seasonally adjusted figure. The German industrial production data are important because it is the largest economy in the eurozone, however, the market may also react to the data of industrial production in France. The initial publication of this report shows a more limited sample of information, which is subject to revision when the full sample is available. Sometimes, the Ministry of Finance of Germany indicates the expected direction of the review of the data originally published.

Indicators related to inflation

Harmonized Index of Consumer Prices

The Harmonized Index of Consumer Prices (HICP) in the EU, is an indicator published by Eurostat, which was created for comparison with other countries, as required by EU legislation. The IPCA began to be published by Eurostat since January 1995. Information regarding prices is gathered by the various national statistical agencies in each country, which should provide Eurostat the100 index for the calculation of the HICP. With this information, Eurostat calculates the HICP of each country as a weighted average of these subindices; for each nation the weights used in the calculation are specific. The publication of the IPCA is performed at the end of the month following the reference period, which is around 10 days after the publication of IPC in France and Spain, the last countries in the EMU-5 that make this information public. This information is important for the market because although some of these data have already been made public and is available to investors by the time the IPCA is published, it is used by the ECB (European Central Bank) as a reference inflation index. The inflation objective of the ECB in the eurozone remains in a range of 0 to 2 percent.

Monetary mass M3 (money supply)

The M3 is a general measure of the money supply in Europe, which includes bank deposits up to banknotes and coins. The M3 is monitored closely by the ECB because it is considered a key indicator of inflation in Europe. In December 1998, the Governing Council of the ECB adopted its first reference value for M3 increment in 4.5%, a value that allows inflation below 2%, trend growth of 2% to 2.5 % and a decrease in the velocity of long term money from 0.5% to 1%. The growth rate is controlled as the moving average of three months to prevent the monthly volatility can distort the total information. ECB monetary targets were created to give enough room for maneuver and interpretation. Because it does not impose bands of M3 growth, as did the Bundesbank, there are no automated actions when M3 growth varies substantially from baseline. Likewise, although the ECB considers the M3 a key indicator, it also takes into consideration changes in other comprehensive monetary figures.

Unemployment in Germany

The data published by the Bureau of Labor in Germany contains information about the number of unemployed in addition to the changes during the previous month, in seasonally adjusted terms (SA) and non-seasonally adjusted (NSA) terms. The NSA unemployment rate has information on vacancies, the number of employees and positions of short shifts. An hour after publication by the Federal Labour Office, the Bundesbank makes the publication of the AE unemployment rate. Commonly, a source from a union presents the data the day before the official disclosure, particularly concerning the NAE unemployment level in millions. When Reuters presents a precise figure of NAE unemployment and indicates that it has been provided by “sources”, usually the filtration reflects the official data. Rumors also appear frequently one week before the official declaration, although these tend to be rather vague. In this case, it is important to be careful when interpreting reports based on hearsay, because sometimes comments and statements from German authorities have been interpreted in an unreliable way and these dubious interpretations have been reproduced by the international press.

IFO Survey (Information and Forschung)

As noted above, Germany is by far the most powerful economy in Europe, which accounts for over 30% of GDP in the area. Any analysis of German business conditions is taken as a look to Europe at a general level. The IFO is a monthly survey conducted by the IFO institute (Institute for Economic Research), in which more than 7,000 companies from Germany are surveyed and asked to assess the business climate in this country along with their business plans in the short term. The initial publication of results includes the information corresponding to the business climate as the main data in addition to its two weighted sub-indices: general business conditions and expectations for the business. Usually, the strip goes from 80-120 and the higher the number, the more positive the business climate. However, the greatest value of this index is given when compared with previous values.

Budget Deficit for Specific Countries

According to the Stability and Growth Pact, countries must keep their deficits below 3% in relation to GDP. Also, each nation sets targets to reduce the deficit further, and in each case, participants in financial markets like Forex, pay special attention when these objectives are not met, as this can cause movements in the prices of currencies belonging to these countries. For example, when the deficit reduction goals of a country are not met, the impact on that country’s currency is usually negative.