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Why traders care about economic calendars - your guide to market-moving events

Stay ahead in the trading game by understanding why economic calendars are indispensable tools for every trader. From monthly jobs reports to interest rate hikes, find out how these calendars can help you make informed decisions.

Source: Bloomberg

Economic calendars are handy tools for traders to keep track of upcoming economic events and data releases. As a trader, you want to know when these things are happening so you can prepare your trades accordingly.

Let's say for example the monthly US jobs report is coming out on Friday. This report contains key data on the health of the labour market, like the unemployment rate and number of jobs added or lost.

In the days leading up to the report, traders will check the economic calendar to see when exactly it's scheduled to come out. Then they'll start thinking about how the data might impact certain assets. If the jobs numbers come in stronger than expected, that's usually positive for the stock market and negative for bonds.

On the day of the release, traders are glued to their screens waiting for the data. When the numbers hit, prices can move wildly in a matter of minutes or even seconds! Traders who positioned themselves well ahead of time can profit from the volatility. Others may get caught off guard if the market reacts differently than they were anticipating.

The jobs report is just one example - there are lots of economic events like interest rate decisions, GDP estimates, and earnings reports that savvy traders pay attention to on the calendar. By knowing what's coming down the pike, they can make more informed trading decisions and better capitalise on price swings when the news hits. Checking those calendars regularly is an important habit for active traders who want to stay on top of market-moving events.

Here are a couple historical examples of economic calendar events that had a major market impact:

  • December 2015 Fed Interest Rate Hike - After years of virtually zero interest rates, the Fed finally raised rates by 0.25% at their December 2015 meeting. This was highly anticipated by traders for months leading up to the decision. When the hike actually happened, we saw stocks sell-off sharply and the dollar strengthen as traders reacted to the change in policy. Those who had positioned for the rate hike were able to profit.
  • May 2016 Non-Farm Payrolls - The monthly jobs report is always widely watched. But the May 2016 report was even more anticipated because the prior two reports had come in very weak. Traders were eager to see if the labour market was bouncing back or entering a slump. When the May report then showed the US economy had added a staggering 244,000 jobs, it exceeded expectations by over 100,000. The stock market spiked on the surprisingly strong data while bond yields rose as traders adjusted their outlook for Fed policy.
  • June 2016 Brexit Referendum - The vote by the UK to leave the European Union took markets by complete surprise. Because the odds of a "Leave" result seemed small, traders were not well positioned for that outcome. Once the Brexit was confirmed, the markets went into shock with the S&P 500 dropping 3.6% in one day and the British Pound crashing to 31-year lows. However, savvy traders who had properly accounted for the unlikely but still possible Brexit scenario were able to get short ahead of the volatility.

In all these cases, paying close attention to the economic calendar and thinking through the market impact allowed skilled traders to anticipate and react to the volatility.

By knowing what high-impact announcements are coming up, traders can analyse likely market reactions and position themselves ahead of time to react to the volatility when the news hits.

Some best practices include:

  • Regularly reviewing economic calendars to see upcoming events for the week ahead and months down the line. Focus on announcements that typically cause heavy market reactions
  • Considering possible outcomes for key releases like jobs reports or rate decisions, and planning trades for a variety of scenarios. Don't assume only an optimal result
  • Evaluating your current positions and adjusting your portfolio in advance to align with potential macro impacts from scheduled events
  • Being vigilant on the actual day of the release. You want to be able to react rapidly but also rationally
  • Managing risk appropriately around news events, using stop losses and maintaining balanced exposure. Volatility works both ways.

By diligently following economic calendars and implementing careful preparation, traders can ensure market-moving events don’t take them by surprise.

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