I’m building on the the proper location for each economic announcement. Note the vital importance of the Export side as the driver of economic prosperity. Note also how to read or listen to central bankers press conferences and notice how each insertion to the Import and export side fits like a glove as it matches to Central bank words.
Powell spoke the magic words as Monetary Policy will remain restrictive and rate cuts was not considered. One sentence destroyed the entire Export side to economic expansion. A rate cut would contain the opposite effect by loosening Monetary Policy to allow Money Supply and GDP to rise.
Powell’s one sentence immediately changed the shape of the Import and Export lines as the market trades on Powell’s words. The next GDP release should travel lower as Powell failed to speak positively to Economic expansion.
GDP is the reference to Real GDP rather than the market annual rate we see released. GDP last at 4.9 as the market rate is actually 2.1 for Real GDP. Real GDP runs about 1/2 to the Market GDP rate.
Real GDP is the central bank focus as the true GDP rate because it eliminates the volatility of the market rate and because Real GDP is employed as the calculation for Imports and Exports and released every 6 weeks. Real GDP must be accurate to ensure Import and Export numbers are precise.
To factor GDP by itself for future releases, Real GDP is the only available numbers.
Deep in the BEA release is this: Imports, which are a subtraction in the calculation of GDP, increased. Best viewed as the opposite as GDP rises alongside Exports as an addition.
The current view answers the question what does Monetary Policy look like at the present juncture and movements to Import and Export Lines. What is required to fix an imbalance or not to touch any one category as all operates sufficiently. We’re interested in the whole view rather than a particular driver to an up or down Inflation rate for example.
Exchange rates is placed on the Import Side because of Interest rates mainly and because Interest rates and Inflation are the same numbers and both drive and determine the Exchange Rate price.
The Output Gap was added because the Output Gap must be positive in order for GDP to trade higher. Output Gap = GDP minus GDP divide by GDP. The Output Gap is essentially the same as GDP and belongs on the Export side.
Later, features will add for a comprehensive view such as Government spending and possibly taxes. The assumption is Government spending belongs on the Import side.
Imports = Inflation, Interest Rates, Exchange Rates
Exports = GDP, Money Supplies, Producer Prices, Output Gap, Unemployment, Wages, Consumption, Corporate Profits, Fixed Investments, Housing.
Based on each release every 6 weeks, we have Import and Export Lines as moving averages. Central banks release Import and Export Lines as monthly and yearly and usually dates back about 2 years.
Brian Twomey
Tianzuida ON TRADING 