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Fundamental Forex Foundations

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Business Inventories

Tue, Jul 14 2009, 12:31 GMT
by Tim Salem

FXstreet.com Independent Analyst Team

This Data Point Release tracks Total U.S. Inventories and Business Sales, and is released approximately Six Weeks after the Reporting Month’s End at 14:00 GMT.

Offered by The Census Bureau, the Release gives a comprehensive Indication of Overall Economic Health concerning Current Cycle Conditions and acts as a Barometer of possible Futures Conditions as well.

The Report is comprised of Three Data Sets:

• TOTAL BUSINESS SALES: Since most Sales Data for the Reporting Month has already been released, the market has usually “digested” the Data, and it is “Priced-In” to The Markets.
• TOTAL INVENTORIES: Exactly as the name implies, this Data Set represents the comprehensive amount of Physical Goods that Retailers, Manufacturers, and Wholesalers will have on Immediate- Hand. The actual Retail Figure Component is new to this Set, since it is at the Retail Level that the Economic Conditions can see concern moving forward.
• INVENTORY SALES (The I/O Ratio): The Inventory Sales Ratio is used largely to measure too much Inventory on hand or too little, dependent upon Current Sales cycles and Demand. The actual Ratio is a Measure of approximately how many Months it may take to move Inventory based on the most recent Monthly Sales Data. A “Default” Measure is for a Company or Firm to not have more than 1.5 Months of standing Inventory on hand at any given time.

The Numbers and How They are Derived

Released Simultaneously with Retail Sales, the Majority of the Business Inventory Data has already been released, and only the Retail Inventory Data that Firms have On-Hand is “new” to the markets for Digestion. A clear sign of Future Business Spending, the Inventory Data is crucial as Companies and Firms are more likely to purchase New Inventory if Supplies-on-Hand are depleted or below measure.

Trading Ideas

Traders will look to simultaneously-released Retail Sales Data for Cues on working with this Release, considering the Majority of the Components would have been released as a part of that Data Release. Market Reactions on the whole to Business Inventories are “mild” due to the above reasons. Non-Event Days or Days with lower Institutional Volume and High Volatility may still bring Market Reactions immediately after Release.

We still have some Characteristics that can be observed as follows:

CURRENCIES: The “I/S Ratio” is the crucial Component concerning the underlying Currency, as increased Inventory Ratios to Sales Data will be largely Negative for The Currency due to a “Gridlock” of excess Inventory not being moved by the Firms. This type of Sentiment would them raise concerns about Lower Interest Rates and decreasing Outflows to Foreign Investors. If the Sales and Inventory by the Companies and Firms are liquid and moving, this would be Positive for the Currency and it will rise in Appreciation.

BONDS: An Increase in Inventory sales signifies a Robust Economic Environment, which implies stronger GDP Growth leading to Bond Price Devaluation. As Inventories slow and “Gridlock” on the Company Level, this will lead to Price Appreciation and higher Bond Prices.

EQUITIES: The Equity Markets and Indices have little to no Reaction to this Data Point, as the majority of Equity Activity will occur during the Retail sales Data Point Release.

* Download here the Business Inventories Data courtesy of The U.S. Department of Commerce

• Download full report

Published on  Tue, Jul 14 2009, 12:31 GMT