Bloomberg Market Concepts PDF

Preview

Summary

Notes on corporate finance...

Description

Bloomberg market concepts Economic indicators The primacy of GDP Gross domestic product (GDP) is a measure of the size and health of a country’s economy. Governments from time to time change the scope of and criteria for GDP measurement as we saw with Nigeria and Italy. The tools used to measure an economy often reflect what is important about that economy. Personal consumption contributes 2/3 to the United States GDP. It is therefore vital to analyse trends in consumer spending and macro-economic influences. When analysing a security with heavy exposure to a country’s, it is helpful to use that country’s economic data as an input to the investment process. ECOW (economic data watch) function lets us find the most useful economic data by country. Essential economic indicators are: 1. 2. 3. 4. 5.

Economic growth (GDP) Inflation Unemployment Business confidence Housing

GDP is the market value of all final good and services produced in a county. GDP = C + I + G + (X-M), where:      

C = personal consumption I = private consumption G = government consumption X = exports M = imports (X –M) = net exports

The US is consumer driven (C) and a net importer ECST function gives us the break-down of the GDP of a country 50% of Chinas GDP stems from private investment (I) 58% of Denmarks GDP is government spending (G)

If the Dollar growth in imports is greater than the dollar growth in domestic consumption, GDP will decrease. This is because imports act as a drag on GDP and the larger growth in imports offsets the growth in consumption thereby causing GDP to decline. The first thing an investor wants to know when examining an economy is the percentage change in GDP from one year to the next (GP function) Nominal GDP growth is usually always greater than real GDP. This is because nominal GDP includes inflation. Nominal GDP takes into account both increases in production and increases in prices of goods and services. Real GDP isolates increases in production Nominal GDP growth (%) – inflation (%) = real GDP growth (%) A recession is defined as two successive quarters of negative real GDP growth Inflation is the general increase in the prices of goods and services which diminishes the purchasing power price of money. Inflation means that a unit of money tomorrow buys less than the same unit of money today. Inflation raises the cost of living In the US, there are two primary sources of inflation data: 1. The quarterly GDP report published by the Bureau of economic analysis contains the GDP price deflator which s the most afforitative number as it is based data of the whole economy 2. The monthly consumer price index published by the Bureau of labour statistics is based on data of a representative basket of goods and services. For CPI to be an effective to be an effective measure of inflation it needs to be truly representative of spending habits in that country. The economy tends to shrink when more people lose their jobs that get hired. An overall increase in unemployment depresses GDP growth. Nonfarm payrolls are the most important employment indicators in the United States. The fact that the United States is largely a consumer economy leads to the tight connection between U.S unemployment and the U.S GDP. ISM manufacturing PMI is the most widely used measure of business confidence. A PMI rating above 50 indicated optimisim and a rating below 50 signifies pessimism.

There is a strong relationship between the PMI indicator and real GDP growth. For most of the recession, the PMI indicator dipped shortly before GDP declined. When nominal GDP growth is above real GDP growth at the far right hand end of the chart, this shows that the country has inflation. PMI is the best leading economic indicator. The goal of a leading indicator is to be alerted to forthcoming turning points in real GDP growth. In the great recession starting in late 2008, PMI fell to its low point and started to recover well in advance of GDP falling to its low point and then rebounding. Accounting for population growth is a major factor in determining how prosperous a country can become. An increase in gross GDP is not the only factor that determines the prosperity growth of a country. Monitoring GDP Imagine it’s the 1 of January in the US. The first thing you will do it look at the world economic calendar (WECO function) which shows a chronological order of economic indicators to be released after January the first. Every month, indicators will be released, starting from PMI, then Non-farm payrolls, then housing starts and lastly inflation CPI. For all of these we want the actual stat to be greater than the predicted. GDP is released every quarter. It is too late. We use the monthly economic indicators to get a more timely understanding of the country and how it is currently performing. Forecasting GDP Relevence column in Bloomberg indicates the volumn of alerts that analysts have set up for each indicator. The greater the investor interest, the greater its importance can be. The more timely indicators offer the most insight to investors The survey column contains the analysts concensus forecast for a particular indicator. Right click on estimated survey amount to see how the concensus was calculated. ECOS function shows the working. Economic forecast function (ECFC) Economic surprise monitor (ECSU) shows fourty leading indicators for the US economy Summary of terminal functions:  

NH – shows a real-time scroll of news headlines ECST S – provides economic data with context and customizable graphs

     

ECOW – provides comprehensive data on economic indicators by country GP – price chart used to identify trends and market patterns WECO – Shows economic calenders, events, and releases by country ECOS – provides full details behind economist estimates for calender releases ECFC – displays economic forecasts for identifying trends in global economies ECSU – estimates changes in the economy and financial markets

Currencies Summary of terminal function:            

ECTR – interactive tradeflow map FXCA - currency conversion calculator PEG – table of currencies linked to other currencies BI – provides analysis and data on a series of tailored industry dashboards FXTF – library of all the worlds currencies FXC – matrix of currency exchange rates WCRS MAC – big mac index identifying potentially overvalued or undervalued currencies IFMO – world inflation monitor FXFC – displays foreign exchange rate forecasts FX24 – displays currency pair trading 24/7 FXFM – an FX rate forecast model which displays a bell curve of implied volatility FRD – displays FX forward rates for currency pairs...