How Can the Other Half of the World Help You Out?
Today at 4:45pm, New Zealand's GDP, on a quarterly basis, will come out and let investors know how the country's economy is doing. The Gross Domestic Product essentially measures the value of goods and services produced by the economy. It is a broad measure of economic health and is integral for understanding whether economic or monetary policies are truly being reflected in the public and private sectors.
Positive GDP indicates that companies as well as individuals are ultimately creating more output, despite uncertain economic times. Companies are essentially ramping up business and are providing more services for their clients. This indicates to traders that things may be better, after all, and tends to move the equity markets higher. In pre-market trading, the currency will move higher along with equities as well.
This afternoon, traders will be looking for New Zealand's GDP to surpass an estimate of 0.6%. If the number is greater than the estimate, the New Zealand Dollar will immediately move higher, and barring unforeseen European news or other macroeconomic news, will set the stage for the New Zealand and Australian equity markets. The Australian Dollar will most likely react in the same manner as the New Zealand Dollar.
Long-term investors should also keep in mind the GDP from the prior period, which was 0.1%. GDP comes in every quarter, so long-term investors should keep track of quarterly snapshots of the consumer retail sector. Any aberrations or sudden drops could mean that consumers are getting skittish about the economy and are refusing to spend money on items not deemed necessary.
Investors should also keep in mind that the holiday season may artificially bolster trends. If investors see a sudden drop in January sales, they should not assume the economy is extremely bearish. However, if investors see a sudden drop this afternoon, then there may be underlying problems affecting the economy.
Consumers have a few options when it comes to understanding the global economy. New Zealand's GDP number is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the news to stay on top of major developments that move markets.
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Traders who believe that New Zealand GDP will be positive might want to consider the following trades:
- Long a bullish New Zealand ETF during market hours. An ETF such as the iShares MSCI New Zealand Index (NYSE: ENZL) would serve well for this cause; you could also purchase options after market open if New Zealand news is continuously bullish. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Long the New Zealand Dollar/US Dollar currency pair, which will move higher due to positive New Zealand economic news.
- Gold tends to move with the New Zealand Dollar, so a positive NZD bet would warrant a long bet on gold.
Traders who believe that New Zealand's GDP will not be positive may consider the following positions:
- Short Australian Dollar futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful. The AUD also moves in tandem with the NZD
- Long the US Dollar against the New Zealand Dollar, which will move upwards if the NZD shows weakness.
- Short the Australian Dollar, which will most likely go down along with the New Zealand Dollar.
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