Traders Lock Gaze On NFP After Thanksgiving Holiday

Economic

Summary:

Will the NFP data corroborate bets of a Fed pause?

NFP and ISM PMIs to shape Fed expectations

The US dollar took a breather last week, pulling back even after being temporarily boosted by US President-elect Donald Trump’s tariff threats on Canada, Mexico and China.

Perhaps traders decided to capitalize on their previous Trump-related long positions heading into the Thanksgiving Holidays and this week’s all-important data releases. Market pricing is far from suggesting that investors’ concerns about a Trump-led government are receding.

This is evident by Fed funds futures still pointing to a strong likelihood of a pause by the Fed at the turn of the year. Specifically, there is a 35% chance for policymakers to take the sidelines in December, with the probability of that happening in January rising to around 58%. What’s also interesting is that there is a decent 27% likelihood for the Committee to refrain from hitting the rate cut button at both gatherings.

With that in mind, this week, market participants are likely to pay extra attention to the ISM manufacturing and non-manufacturing PMI data for November, due out on Monday and Wednesday, but the highlight of the week is likely to be Friday’s Nonfarm payrolls for the same month.

With inflation proving somewhat hotter than expected in October, the prices charged subindices of the PMIs may be closely monitored for signs as to whether the stickiness rolled over into November. The employment indices will also be watched for early clues regarding the performance of the labor market ahead of Friday’s official jobs data.

Should the ISM PMIs corroborate the notion that the world’s largest economy continues to fare well, the probability for the Fed to take the sidelines at the turn of the year will increase, thereby refueling the dollar’s engines. However, whether a potential rally will evolve into a strong impulsive leg of the prevailing uptrend will most likely depend on Friday’s numbers. Following October’s 12k, which was the smallest gain since December 2020, nonfarm payrolls may need to return above 200k for investors to become more confident in the dollar uptrend.

The JOLTs job openings for October on Tuesday and the ADP employment report for November on Wednesday could also offer clues on how the US labor market has been performing.

Is a back-to-back 50bps cut off the table for the BoC?

At the same time with the US jobs data, Canada releases its own employment report for November. At its latest gathering, on October 23, the BoC cut interest rates by 50bps to support economic growth and keep inflation close to 2%, adding that if the economy evolves broadly inline with their forecasts, further reductions will be needed.

Investors were quick to pencil in a strong likelihood for a back-to-back double rate cut, but the hotter-than-expected CPI numbers for October made them somewhat change their mind. Currently there is only a 25% chance of such a bold move, with markets becoming more convinced that a quarter-point cut could be enough.

With that in mind, a strong report on Friday could further weigh on the chances of a double cut by the BoC and thereby support the loonie. Nonetheless, an upbeat employment report may not be enough for the currency to change orbit and begin a bullish trend. More threats by US president-elect Trump about tariffs on Canadian goods could result in more wounds for the currency.

Strong GDP could keep the RBA on hold for longer

From Australia, the GDP data for Q3 are coming out on Wednesday, during the Asian morning. The RBA is the only major central bank that has yet to press the rate cut button in this easing cycle, with market participants believing that the first 25bps reduction is likely to be delivered in May.

The latest monthly inflation data revealed that the weighted CPI held steady at 2.1% y/y, but the headline rate rose to 2.3% y/y from 2.1%. With the quarterly prints also pointing to weighted and trimmed mean rates for Q3 at 3.8% and 3.5% respectively, it may take time before this Bank starts considering lowering rates, and a strong GDP number for that quarter could prompt investors to push further back the timing of the first reduction.

This could prove positive for the aussie, but similarly to the Canadian dollar, it may be destined to feel the heat of Trump’s tariffs as the president-elect has pledged to hit China with even bigger charges than Canada.

Will ECB’s Lagarde agree that a 50bps cut may not be needed?

In the Euro area, although Germany’s preliminary inflation numbers for November came in below expectations, they still revealed some stickiness, with the headline rate rising to 2.2% y/y from 2.0%. The Eurozone’s headline rate also moved higher, to 2.3% y/y from 2.0%.

Combined with hawkish remarks by ECB member Isabel Schnabel who said that rate cuts should be gradual, this weighed on the probability of a 50bps reduction by the ECB at its upcoming meeting, despite the disappointing flash PMIs for the month. Currently the probability for the ECB proceeding with a double cut on December 12 stands at around 20%.

Having that in mind, this week, euro traders may lock their gaze on a speech by ECB President Lagarde on Wednesday, who will make an introductory statement before the Committee on Economic and Monetary policy Affairs (ECON) of the European Parliament. They may be eager to get more information about how the ECB is planning to move forward.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Owen Li

Economic

KUALA LUMPUR (Dec 2): In November, the Malaysian manufacturing sector experienced a slowdown as demand conditions remained subdued, according to a statement by S&P Global on Monday.

The S&P Global Malaysia Manufacturing PMI dipped slightly to 49.2 in November, from 49.5 the month prior, signalling a marginal moderation in the sector’s health.

Despite the slowdown, the PMI data suggests that the final quarter of 2024 will likely continue to see gross domestic product (GDP) growth, although at a slower pace than previously observed.

New orders, production, and stock levels all saw declines, while employment largely stagnated.

Usamah Bhatti, an economist at S&P Global Market Intelligence, noted that Malaysian manufacturers faced pressure as operating conditions continued to moderate. "New orders, output and employment all softened, with incoming new business easing to the largest degree for seven months."

However, firms involved in the survey noted stronger overseas demand, leading to an increase in new export orders for the eighth consecutive month.

The rate of input cost inflation dropped to a nine-month low, resulting in stable output charges.

New orders fell for the fourth time in five months, marking the steepest decline since April.

This was contrasted by growth in international orders, largely attributed to demand from the Asia-Pacific region.

Production eased at a modest pace, with the rate of reduction slightly less severe than the previous month. Employment levels saw a decrease as firms chose not to replace voluntary leavers.

Backlogs of work stabilised, reaching the highest reading in four months, as limited capacity continued to strain operations.

Purchasing activity, input stocks, and finished goods inventories were all reduced, although the rates of reduction were slower compared to previous months.

Despite weaker demand for inputs, delivery times extended for the seventh consecutive month, with disruptions in the Red Sea cited as a contributing factor.

Input cost inflation eased to a nine-month low, driven by higher raw material prices and a weaker exchange rate. Factory gate inflation was minimal, as firms sought to lower prices to boost sales.

Confidence in the 12-month outlook remained solid, with hopes for improved market demand driving optimism.

The overall level of confidence was consistent with October, but remained below the long-term average due to concerns about the timing of a domestic demand recovery.

The S&P Global Malaysia Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.

Source: Theedgemarkets

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Economic

Commodity

Energy - OPEC+ meet this week

Oil prices edged lower on Friday, and the Brent Feb-25 contract settled more than 3.7% lower on the week. However, the market continues to trade in a fairly narrow range. A cease-fire between Israel and Hezbollah, which appears to be holding, will be weighing on prices. There remains plenty of uncertainty on the supply side this week. OPEC+ is scheduled to hold its meeting on 5 December to discuss output policy for 2025. The meeting was originally scheduled for 1 December. A handful of OPEC+ members are set to gradually bring 2.2m b/d of supply back onto the market next year. However, the oil balance does not need this additional supply as it will push the market into a large surplus. The challenge is that the group needs to find a balance between trying to support the market and limiting its loss in market share. Complicating matters still further, some members are still failing to stick to their agreed production levels.

While CFTC data was delayed due to the Thanksgiving Holiday last week, we did have positioning data from the ICE. Over the last week there was little change in speculative positioning in ICE Brent. Speculators reduced their net long by just 4,081 lots to 130,848 lots. Similarly, in ICE gasoil there was only marginal movement with speculators increasing their net long by 3,421 lots to 23,239 lots as of last Tuesday.

Over the weekend, the Russian government announced that it would allow producers to export gasoline from the start of the new year, while other exporters have had the ban extended until the end of January. The government had put export bans in place this year to stabilise prices, although there were various exemptions for the ban. For refined products, any intervention in middle distillates would be more meaningful, given the larger volumes of diesel that Russia exports.

European natural gas prices rallied on Friday. TTF settled more than 2.4% higher on the day. There are concerns over supply given the stronger storage draws so far this winter. Storage is a little more than 85% full, which is below the 5-year average of almost 88% full. Lower-than-expected storage combined with the prospect of Russian piped gas via Ukraine coming to a stop at the end of this year is a worry for the market. While we still see a relatively comfortable balance by the end of the 204/25 heating season, the region will still have a bigger task in refilling storage over the 2025 summer (compared to this year), which is reflected in the backwardation between summer 2025 and winter 2025/26 values. Last week, the European Commission also increased its target storage levels from 45% to 50% by February.

Metals – Iron ore prices recover

Iron ore extended its gains on Friday, rising by around 8% over the past two weeks as higher profitability at steel mills in China has supported demand. Earlier in the week, data from the National Bureau of Statistics showed that steel mills returned to profit in October 2024 after making huge losses over the preceding two months. The latest data from Steelhome shows that iron ore inventory dropped 1.5% last week to 148.5mt; although this is still significantly higher than the seasonal average of around 131.8mt.

The latest data from Chile’s National Statistical Institute shows that copper production increased 6.7% YoY to 492.8kt in October 2024. Cumulatively, production has increased by 3.5% YoY to around 4.5mt over the first ten months of the year. A production ramp-up at Teck Resources’ Quebrada Blanca mine and higher production from the Escondida mine have been the main contributors to copper production growth in Chile this year.

The latest data from the Shanghai Futures Exchange (SHFE) show that weekly inventories for all base metals (except for nickel) fell over the reporting week. Aluminium stocks fell for a fifth consecutive week (down 4,053 tonnes) to 227,801 tonnes. Meanwhile, copper stocks fell for a sixth consecutive week, decreasing by 11,461 tonnes (-9.5% WoW) to 108,775 tonnes. Zinc and lead inventories also fell by 9,156 tonnes and 4,209 tonnes over the week. In contrast, nickel inventories rose by 5.8% week-over-week to 33,014 tonnes, the highest since 4 September 2020.

Agriculture – EU raises grain production estimates

In its latest cereals market situation report, the European Commission estimates that the bloc’s grain production could rise to 256.9mt for the 2024/25 season, compared to its previous projections of 255.6mt. This is driven by an increase in estimates for corn production, which rose from 58mt to 59.6mt, due to an increase in harvest area. The European Commission estimates EU corn imports to increase from 19mt in 2023/24 to 19.5mt in 2024/25. On the other hand, soft-wheat production estimates were revised marginally to 112.3mt, down from its previous projections of 112.6mt and 125.2mt of production in 2023/24. Lower output is expected to limit EU exports to around 25mt in 2024/25 compared to 35.3mt in 2023/24.

France’s Agriculture Ministry said that around 89% of the corn crop was harvested as of 25 November, up from 82% in the previous week but below the five-year average of 98%. Meanwhile, about 93% of the French soft wheat was planted, compared with 81% last year and a five-year average of 91%. The ministry also reported that 87% of the soft wheat was rated in good to very good condition, down from 88% a year earlier.

US weekly net export sales for the week ending 21 November show strong demand for soybeans, while corn and wheat shipments fell over the week. Weekly export sales for corn were down to 1,130.1kt for the week, lower than the 1,494.6kt a week ago and 1,927.8kt the same time last year. Similarly, wheat exports fell to 366.8kt, lower than 549.6kt in the previous week and 634.8kt reported a year ago. In contrast, US soybean shipments increased to 2,508.5kt, higher than the 1,860.6kt reported a week ago and 1,895.3kt reported a year ago.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

When it comes to trading in the stock market, one of the most important decisions you'll face is selecting the right time frame for your trades. The time frame you choose will influence your strategy, risk management, and overall approach to the market. Whether you're a day trader, swing trader, or long-term investor, understanding the nuances of different time frames can help you make more informed and successful trading decisions.

In this article, we’ll explore the best time frames for stock market trading, their pros and cons, and how to choose the right one based on your individual goals and risk tolerance.

Understanding Different Time Frames in Stock Trading

Before diving into the best time frames for trading, it’s essential to understand the various types of trading time frames. In the stock market, traders typically operate within one of the following time frames:

Scalping (Very Short-Term)

Duration: Seconds to minutes

Description: Scalpers make dozens or even hundreds of trades in a single day, seeking small profits from tiny price movements. This style requires constant attention and quick decision-making. It's highly active and suits traders who can handle stress and have access to high-speed internet and direct market access (DMA) platforms.

Day Trading (Short-Term)

Duration: Minutes to hours

Description: Day traders open and close positions within the same trading day, aiming to profit from intraday price fluctuations. They typically trade on high volatility and may hold positions for minutes or hours, but never overnight. This approach requires a lot of time and attention to market movements and news.

Swing Trading (Medium-Term)

Duration: Days to weeks

Description: Swing traders aim to profit from short to medium-term price movements by holding positions for several days or weeks. They analyze technical indicators, chart patterns, and market trends to capture price swings. Swing trading is less time-intensive than day trading and requires less screen time.

Position Trading (Long-Term)

Duration: Weeks to months or even years

Description: Position traders hold their trades for a long period, based on fundamental analysis and long-term market trends. This approach is ideal for traders who do not want to spend much time actively monitoring the market and are more focused on long-term growth and stability.

Investing (Very Long-Term)

Duration: Months to years

Description: Investors take a long-term view, holding stocks for months, years, or even decades. They focus on the underlying value of a company, economic factors, and long-term growth. Investors are typically less concerned with short-term price fluctuations and more focused on the overall performance of their portfolios.

Factors to Consider When Choosing a Time Frame

Your Trading Goals

If you're aiming for quick profits, you may want to consider shorter time frames like day trading or scalping. On the other hand, if you’re more focused on long-term growth, position trading or investing might be a better fit. Your goal will significantly impact your approach and the time frame that aligns with your strategy.

Risk Tolerance

Shorter time frames, like scalping and day trading, tend to have higher volatility and require quick decisions. If you have a low risk tolerance, you might find these strategies too stressful. Longer-term strategies like swing trading or position trading, while still risky, tend to have more time to react to market movements, offering a little more flexibility.

Time Commitment

Scalping and day trading require a significant time commitment. You'll need to monitor the market continuously throughout the trading day and react swiftly to any market changes. Swing traders and position traders, however, require less screen time, as they hold positions for a longer duration.

Market Conditions

Certain market conditions are more favorable for specific time frames. For example, volatile markets with rapid price changes are ideal for day trading or scalping, where small, quick profits are possible. A trending market, on the other hand, is often more favorable for swing trading or position trading, as these strategies aim to capture bigger price moves over days, weeks, or months.

Experience Level

If you're just starting out, you might want to avoid very short-term strategies like scalping, as they require a deep understanding of the market and can be overwhelming. Swing trading or position trading can be better suited for beginners, as they allow more time for analysis and decision-making.

The Best Time Frame for Different Types of Traders

Now that we have a better understanding of different time frames and the factors to consider, let’s break down the best time frames for various types of traders:

Scalpers

Best Time Frame: Seconds to minutes

Strategy: Scalpers thrive on quick price movements and typically use tick charts or one-minute charts to spot trade opportunities. This style is suited to those who can make fast decisions and handle stress.

Day Traders

Best Time Frame: Minutes to hours (intraday)

Strategy: Day traders use short-term charts such as 5-minute, 15-minute, or 30-minute charts. They focus on intraday volatility and make multiple trades throughout the day.

Swing Traders

Best Time Frame: Days to weeks

Strategy: Swing traders often use daily or 4-hour charts to analyze price patterns, trends, and technical indicators. They aim to capture price swings within a medium-term trend.

Position Traders

Best Time Frame: Weeks to months or years

Strategy: Position traders focus on longer-term trends, often using weekly or monthly charts. They base their trades on macroeconomic factors, company fundamentals, and long-term market trends.Investors

Best Time Frame: Months to years

Strategy: Long-term investors focus on fundamental analysis and typically use monthly or quarterly charts to assess a stock’s potential for long-term growth.

Choosing the Best Time Frame for You

Ultimately, the best time frame for trading depends on your personal goals, risk tolerance, and time availability. Here’s a simple way to choose:

If you’re looking for short-term profits and can dedicate full-time attention to the market: Try day trading or scalping.

If you want to capture medium-term trends with moderate risk and time commitment: Swing trading is an excellent option.

If you prefer a more hands-off approach with long-term growth: Position trading or investing might suit you better.

Conclusion

There’s no one-size-fits-all answer when it comes to the best time frame for trading in the stock market. It depends entirely on your goals, experience, and risk tolerance. Whether you choose a short-term strategy like scalping or day trading, or a longer-term approach like position trading or investing, the key is consistency and developing a strategy that fits your personality and lifestyle.

If you’re just starting out, consider beginning with swing trading or position trading as they tend to be less stressful and allow more time for decision-making. As you gain experience, you may experiment with different time frames to see which works best for you.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

The employment rate is one of the most closely watched indicators in economics, providing insights into the health of an economy and the labor market. It is a key factor that influences government policies, business decisions, and individual financial strategies. Whether you’re an investor, a policymaker, or just someone interested in economics, understanding the employment rate is essential for making informed decisions.

In this article, we’ll explain what the employment rate is, how it’s calculated, the different types of employment-related data, and how fluctuations in the employment rate can affect the broader economy and your personal financial outlook.

What is the Employment Rate?

The employment rate is the percentage of the working-age population (usually defined as those aged 16-64) that is currently employed. It is a key indicator used to measure the labor market’s health and is often used in conjunction with other labor force statistics like the unemployment rate and labor force participation rate.

Types of Employment-Related Data

While the employment rate is a critical indicator, there are several other data points related to employment that help provide a fuller picture of the labor market:

Unemployment Rate:

The unemployment rate measures the percentage of people in the labor force who are actively seeking work but are currently unemployed.

A rising unemployment rate can signal economic weakness, while a falling rate can indicate a strong economy.

Labor Force Participation Rate:

This figure represents the percentage of the working-age population that is either employed or actively seeking employment.A declining participation rate can signal that people are becoming discouraged and leaving the workforce, which might not always be a positive sign for the economy.

Underemployment Rate:

This measures the proportion of people employed part-time or in jobs that don’t fully utilize their skills and education.A high underemployment rate can indicate that the economy is not fully utilizing its workforce’s potential.

Job Vacancy Rate:

The job vacancy rate reflects the number of unfilled positions in the labor market. A high vacancy rate may indicate a mismatch between skills and job openings, or it may suggest strong demand for labor in certain sectors.

Why is the Employment Rate Important?

The employment rate is a vital economic indicator for several reasons. Here are a few key reasons why it matters:

1. Economic Health

A high employment rate generally indicates a thriving economy where businesses are hiring and expanding. More people employed means more disposable income, higher consumer spending, and greater overall economic growth.

On the other hand, a low employment rate, especially when accompanied by a high unemployment rate, can indicate economic troubles. This could point to a recession, stagnation, or other negative economic factors.

2. Consumer Confidence and Spending

As more people find jobs and have a steady income, consumer confidence typically rises. People are more likely to spend money on goods and services, driving demand and contributing to economic growth.

Conversely, high unemployment and low employment rates can lead to reduced consumer spending, which can slow down economic growth.

3. Government Policies

Governments and central banks closely monitor the employment rate to shape fiscal and monetary policies. For instance, if the employment rate is low and unemployment is high, policymakers might introduce stimulus programs or cut interest rates to spur job creation.

On the other hand, if employment is growing rapidly and inflation starts to rise, central banks may raise interest rates to prevent the economy from overheating.

4. Stock Market and Investment Decisions

The employment rate plays a significant role in stock market performance. When employment is high, businesses are generally more profitable, which can drive stock prices up. Conversely, high unemployment can lead to lower consumer spending and weak corporate profits, which may negatively affect stock prices.

Investors often look at employment data to gauge the overall economic health and make decisions about where to allocate their money. A robust employment report might lead to positive sentiment in the markets, while a poor report can trigger market sell-offs.The Impact of Employment Rate on the Economy

Changes in the employment rate can have a direct and profound impact on the economy. Here's how fluctuations in the employment rate affect various sectors:

1. Labor Market Dynamics

Low Employment Rate: When the employment rate is low, fewer people have jobs, and the labor market is underutilized. This can lead to higher unemployment, greater economic inequality, and more pressure on social welfare programs.

High Employment Rate: A high employment rate often means that businesses are hiring at a healthy pace, contributing to economic expansion. However, if employment growth outpaces productivity, it can lead to inflationary pressures.

2. Government and Social Services

Government Spending: High employment rates reduce the burden on government welfare programs, while low employment rates often lead to increased government spending on unemployment benefits and other social services.

Tax Revenue: As more people are employed, tax revenues tend to rise due to higher income taxes, which can be reinvested into public infrastructure, healthcare, and education.

3. Business Profitability

Wages and Labor Costs: The employment rate directly affects labor costs for businesses. If the employment rate is high and the labor market is tight, businesses may need to offer higher wages or benefits to attract and retain talent.

Consumer Demand: High employment rates usually translate into higher disposable incomes, leading to increased demand for products and services, which benefits businesses in sectors like retail, real estate, and technology.

4. Inflationary Pressures

When the employment rate is very high, businesses may struggle to find workers, leading to wage inflation. While this can be positive for workers, it can increase production costs for businesses, which may then pass those costs onto consumers through higher prices. This contributes to inflation.

How to Interpret Employment Rate Data

Interpreting employment rate data requires a holistic view. A high employment rate is typically positive, but context matters. For example:

If employment is high but wage growth is stagnant, it could indicate that while more people are working, they are not earning significantly more, which could signal underemployment or economic inefficiencies.

A sudden spike in the employment rate could indicate that people are entering the workforce due to desperation or that long-term unemployed individuals are finally finding jobs, but it might not reflect a sustainable recovery.

Conclusion

The employment rate is a critical economic indicator that offers insights into the health of the economy, the labor market, and the general well-being of society. Understanding how employment rates function and what they signal about the economy can help businesses, policymakers, and investors make informed decisions. For individuals, paying attention to employment trends can provide valuable clues about job prospects and economic stability.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

Analyzing stocks is a crucial skill for anyone looking to invest in the stock market. Whether you're a beginner or an experienced investor, understanding how to assess a stock’s potential can significantly impact your portfolio’s performance. In this guide, we’ll cover the essential steps to analyze a stock, combining both fundamental and technical analysis to help you make informed investment decisions.

What Does It Mean to Analyze a Stock?

Stock analysis involves evaluating a company's financial health, business model, market performance, and external factors that could affect its value. The goal is to determine whether a stock is worth buying, holding, or selling. Analyzing stocks allows investors to assess the company’s potential for growth, profitability, and stability, as well as to identify risks that could influence its future performance.

There are two main types of stock analysis:

Fundamental Analysis

Technical Analysis

Each approach offers unique insights and, when used together, they can give you a comprehensive view of a stock's potential.

Step 1: Fundamental Analysis

Fundamental analysis is the process of evaluating a company’s financial health and its intrinsic value by examining key financial statements, industry position, and other macroeconomic factors. Here's a breakdown of the key aspects of fundamental analysis:

1. Review Financial Statements

Income Statement: This statement shows the company’s revenue, expenses, and profits over a specific period. Key metrics to look for include:

Revenue Growth: Consistent growth in revenue over time is a positive sign.

Profit Margins: Higher margins often indicate efficient management.

Net Income: The bottom line that shows the company’s profitability.

Balance Sheet: This statement provides an overview of the company’s assets, liabilities, and shareholder equity. Look for:

Debt-to-Equity Ratio: A low ratio generally indicates that the company is not overly reliant on debt.

Current Ratio: This measures a company’s ability to pay off short-term liabilities. A ratio above 1 suggests good liquidity.

Cash Flow Statement: This statement tracks the flow of cash in and out of the company. Positive free cash flow (cash remaining after capital expenditures) is a good sign of a company’s ability to reinvest in growth or return money to shareholders.

2. Key Financial Ratios

Price-to-Earnings (P/E) Ratio: This ratio compares the stock price to its earnings per share (EPS). A high P/E could indicate that the stock is overvalued, while a low P/E could mean the stock is undervalued.

Price-to-Book (P/B) Ratio: This ratio compares the stock price to the company’s book value (its assets minus liabilities). A P/B ratio under 1.0 suggests that the stock may be undervalued.

Return on Equity (ROE): This metric shows how well the company uses its equity to generate profits. A higher ROE typically indicates better management and profitability.

3. Assess Industry and Market Conditions

Industry Position: Understanding where the company stands in its industry can provide insight into its competitive advantages or vulnerabilities. For instance, companies with dominant market share or strong brand equity often perform better over the long term.Economic and Market Trends: Broader market conditions, such as interest rates, inflation, and economic growth, can impact a company's performance. Understanding macroeconomic trends helps investors assess whether the industry is poised for growth or facing headwinds.

4. Management and Leadership

Strong, experienced management can make a significant difference in a company's success. Research the company's leadership team, their track record, and the strategies they’ve implemented in the past.

Investigate any potential red flags, such as leadership turnover, conflicts of interest, or questionable business practices.

Step 2: Technical Analysis

While fundamental analysis focuses on the financial health of a company, technical analysis looks at historical price and volume data to identify trends and predict future stock movements. Here's how to get started with technical analysis:

1. Price Charts

Line Charts: These simple charts track the stock's price movements over time and are often used to identify overall trends.Candlestick Charts: These charts offer more detailed information, including opening, closing, high, and low prices for a specific time frame. Candlestick patterns help investors spot bullish or bearish trends.

2. Identify Trends

Stocks move in trends, whether upward, downward, or sideways. Identifying the current trend can help investors make better predictions about the stock’s future performance.

Uptrend: A consistent increase in stock prices, characterized by higher highs and higher lows.

Downtrend: A consistent decrease in stock prices, marked by lower highs and lower lows.

Sideways Trend: When a stock’s price fluctuates within a narrow range without clear upward or downward movement.

3. Use of Indicators and Oscillators

Technical analysts use various tools to measure price momentum and market sentiment:

Moving Averages (MA): The simple moving average (SMA) and exponential moving average (EMA) help smooth out price data to identify trends. A golden cross (when a short-term MA crosses above a long-term MA) is seen as a bullish signal, while a death cross is a bearish signal.

Relative Strength Index (RSI): This oscillator measures the speed and change of price movements. An RSI above 70 indicates an overbought condition, while an RSI below 30 suggests the stock may be oversold.

Moving Average Convergence Divergence (MACD): This momentum indicator helps identify changes in the strength and direction of a trend.

4. Support and Resistance Levels

Support: The price level where a stock tends to find support as it falls, preventing it from going lower. It’s often seen as a “floor” for the stock.

Resistance: The price level where a stock faces selling pressure, preventing it from rising higher. It acts as a “ceiling” for the stock.

5. Volume Analysis

Volume refers to the number of shares traded during a specific period. High volume during an uptrend indicates strong buying interest, while high volume during a downtrend suggests strong selling interest.

Step 3: Combine Fundamental and Technical Analysis

To make the most informed decision when analyzing a stock, combine both fundamental and technical analysis:

Fundamental analysis gives you an idea of the company's financial health, long-term growth prospects, and overall market position.

Technical analysis helps you time your entry and exit points based on stock price movements and market sentiment.

For example, if you find a fundamentally strong company but the stock is currently overvalued based on technical indicators, you might decide to wait for a better entry point. Conversely, if a stock is technically oversold but has weak fundamentals, you might reconsider buying it, even if the price appears attractive.

Step 4: Consider the Risks

Every investment carries some level of risk. When analyzing a stock, it’s crucial to assess the risks involved, such as:

Market Volatility: Economic downturns or market crashes can negatively affect stocks, even those with strong fundamentals.

Company-Specific Risks: Issues such as poor management decisions, product failures, or regulatory changes can hurt a company’s performance.

Industry Risks: Changes in industry regulations, technological advancements, or competition can impact a company’s future prospects.

Conclusion

Analyzing a stock involves a mix of evaluating financial health through fundamental analysis and examining market trends through technical analysis. By understanding both aspects, investors can make more informed decisions, reduce risk, and maximize returns. Remember, no single analysis method is foolproof, so it’s essential to stay updated, continue learning, and refine your approach over time.

To stay updated on all economic events of today, please check out our Economic calendar

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Bruegel

Economic

Energy

A generalised political consensus appears to exist on the European Union’s overarching goal of a competitive and green European economy. The question of how to achieve this, however, is hard to answer. Comprehensive policy packages reflecting many of the trade-offs needed to reach the goal have been put forward by two former Italian prime ministers in reports commissioned to steer the next EU policymaking cycle (2024-2029; Draghi, 2024; Letta, 2024) . But do their prescriptions align with other expert preferences and opinions?

We conducted a modest experiment on this, taking advantage of an annual gathering of EU economic and policy experts – the Bruegel Annual Meetings (BAM) in Brussels – to capture via a survey a small snapshot of expert views on trade-offs related to EU industrial and climate policy. The objective was to shed some light on the policy mood in Brussels, especially in the context of the reports by Mario Draghi (2024) and Enrico Letta (2024), which are likely influence the EU policymaking agenda for the next five years.

Experiment set-up and results

At the 2024 BAM, we asked attendees to evaluate two different policy packages that combine different trade-offs within specific policy fields. We set up two experiments covering, first, industrial policy and, second, climate and energy policy .

The industrial policy experiment

In this experiment, the policy package involved three different trade-offs relevant to EU-level policy:

Whether to maintain fiscal discipline or provide financial support to strategic industries;

Whether to focus on ensuring market competition through competition and merger policy or to stimulate the creation of large ‘European champions’;

Whether to (i) maintain global trade integration or (ii) build and protect domestic industry or (iii) adopt a policy aimed at maintaining trade openness while favouring politically aligned countries (‘friendshoring’).

The policy packages presented to respondents included one of the options from each trade-off. From the twelve possible combinations (2x2x3), two highly consistent policy combinations can be identified. The first is a digiriste economic plan, including provision of financial support for industries, prioritising the creation of European champions and protectionism to support domestic industrial build-up. The second was a ‘frugal’ and market liberal package, prioritising fiscal discipline, market competition and global market openness. Through repetition of the experiment and random assignment of policy packages across respondents, we can infer preferences for single trade-offs and of overall policy packages. Figure 1 shows the results.

European Industrial Policy at A Crossroads? Evidence from An Expert Survey_1

Respondents were about 20 percent less likely to favour fiscal discipline over investment in strategic industries, while support for market competition was on average about 11 percent higher than support for advocating for European champions. Both these effects were statistically significant at a five percent level, indicating a clear preference. On supply chains for strategic industries, respondents were relatively split: marginally (but not statistically significantly so) favouring ‘friendshoring’ over domestic industrial build-up or global market integration.

European Industrial Policy at A Crossroads? Evidence from An Expert Survey_2

Figure 2 shows that the most supported policy package was a hybrid that deviated from both the pure dirigiste and the pure frugal positions, while mixing characteristics of both: a willingness to spend to support strategic industry, a view that maintaining competition is more important than creating European champions and a belief that friendshoring is preferable to both continued full global market integration and protectionism. The least preferred package also constituted a downward compromise of sorts, mixing policy features that lacked widespread support among respondents.

Letta (2024) and Draghi (2024) both recognise these trade-offs. They acknowledge the constrained fiscal space at EU member-state level and argue for an expansion of EU-level funding. Draghi advocates increased public investment – which he states “will have some impact on public finances” – which mirrors survey respondents’ views.

On competition, the views of respondents also reflect Draghi’s recommendations. He suggested simplifying mergers to scale up European companies and also that such mergers must enhance innovation and maintain competition in the market. Letta (2024) similarly outlined the need for an EU economic model that fosters large European champions while maintaining competition involving a larger number of smaller firms.

On supply chains, Draghi argued for both the build-up of domestic supply and the diversification of international supply chains (mirrored by the Letta’s call for “fostering strategic partnerships”). The policy package most supported by our survey respondents is close to the line taken by both Letta (2024) and Draghi (2024) . Forthcoming EU initiatives, in particular a clean industrial deal promised by the new European Commission, will show how many of these recommendations will be picked up.

The climate and energy policy experiment

In this experiment, one policy package consisting of four trade-offs was presented:

Whether the overall objective of the future EU budget (the Multiannual Financial Framework, MFF) should be decarbonisation or competitiveness;

Whether the long-term distribution of the costs of the energy transition should be borne by households or firms;

Whether to maintain fiscal discipline or prioritise expenses related to the energy transition;

Whether additional regulation is necessary or not, for example introducing green conditions in public procurement.

The energy and climate transition experiment thus allowed for 16 combinations (4x4), two of which are ‘pure’ and fully consistent policy stances. The first pure policy stance is a fully ‘climate-oriented’ stance, combining an MFF focused on decarbonisation, businesses financing the transition, which should override concerns about fiscal space, and additional regulatory measures. On the opposite side of the spectrum, there is a ‘frugal’ and market-oriented approach, that sees competitiveness as the focus of the next MFF, assigns green transition costs to households to avoid overburdening firms, prioritises fiscal discipline and prefers no additional regulatory burden (Figures 3 and 4).

European Industrial Policy at A Crossroads? Evidence from An Expert Survey_3

In terms of the focus of the MFF, competitiveness and decarbonisation were rated similarly. This could imply two things: first, the opinions of experts are mixed, with an equal split between decarbonisation or competitiveness for a given set of other attributes. Or it could imply that respondents are indifferent to the topic and choose the option at random, possibly because of lack of recognition that there is a trade-off in the first place.

For the second option (Figure 3), there seems to be a preference for protecting households over businesses from the cost of the energy transition, though the result is only marginally statistically significant. The third option is whether fiscal discipline or the energy transition should be prioritised. The result is similar to the experiment in industrial policy, with fiscal discipline around 18 percent less favoured than investment in the energy transition. With respect to the last option, tighter regulation is less favoured when examining the policy in isolation.

European Industrial Policy at A Crossroads? Evidence from An Expert Survey_4

The most popular total policy bundle among our respondents was a ‘climate-oriented’ package, in which decarbonisation takes precedence over firm competitiveness and fiscal discipline, while additional regulation is also included and the costs are borne by firms rather than households. Consistent with this, the least-supported package is the ‘frugal’ package, which has the opposite priorities. Although respondents preferred less regulation in isolation, they were more open to regulation in combination with other policies that support decarbonisation.

These preferences appear broadly consistent with Draghi (2024), who noted that decarbonisation can enhance competitiveness by lowering energy costs in the medium and long run. Hence, there might not be a perceived trade-off between one or the other. On the distribution of costs, Draghi seems to advocate for cost-sharing among all consumers, even potentially shifting costs away from energy-intensive firms – a view not shared by our respondents, which reflects some of the criticism Draghi’s report has received. The preference for additional (or at least a change of) rules on public procurement is again reflected in both Letta (2024) and Draghi (2024), and in our most-favoured package.

Limitations and conclusions

First, the number of respondents to our survey was relatively low . As a result, our results are not very precise.

Second, our sample was possibly not fully representative of the BAM attendance. The survey invitation was included in the post-BAM ‘thank-you’ email and so only particularly attentive attendees who read the email participated in the survey. In addition, BAM attendees are of course a selected crowd, skewed towards the economic profession, academia and European institutions, and not fully representative of the overall policy-expert population with a professional interest in industrial and climate policy. While the experiment remains internally valid, its external validity is limited.

Third, we focused on relatively simple experiments with few options and combinations, while still pertaining to complex issues, which might have hampered overall understanding by respondents.

Nonetheless, the results offer an overview of preference tendencies of a certain expert audience linked to Brussels. We find statistically significant and intuitive results for both experiments and that many recommendations in Letta (2024) and Draghi (2024) hit the spot in expressing much of the general EU policy mood: ambition on climate policies, while opting for compromises in industrial policy, reflecting the lack of coherence and clarity of the subject.

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European Industrial Policy at A Crossroads? Evidence from An Expert Survey

Experiment set-up and results

The industrial policy experiment

The climate and energy policy experiment

Limitations and conclusions

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