Gross National Product: Economic Reports
The importance of the Gross National Product/ Gross Domestic Product ( GNP/GDP) can be seen by so many other indicators being created to try and predict the direction of the GNP/GDP.
GNP ie the Gross National Product ,is the total value of all final goods and services produced by a nation regardless of where the assets are located. That means the assets of a US company in Africa are counted in the final GNP. GDP on the other hand is the total value of goods and services produced within the boundaries of the country. So in this case only the assets of the US company that are located within the USA, are calculated.
The GDP is now used as the best comparison between countries and can vary widely especially for those countries that don’t have companies based offshore. However it is a good benchmark on how the economy is doing and politicians are very adept at trying to make it sound as good or as bad as their political motivations. However for fundamental economists these are the common market reactions to the GNP/GDP
| If GNP is Up | If GNP is Down | |
|---|---|---|
| Dollar |
Up
|
Down
|
| Bonds |
Down
|
Up
|
| Stocks |
Up
|
Down
|
How the GNP/GDP Affects the Dollar
The Dollar favors a good GNP report. This is simply because a growing US economy means that other countries are buying and demanding US based goods and services and the economy is robust. By buying US goods and services it means that they are demanding more of the US dollar to be able to buy those goods and services and the dollar would probably appreciate in value. The only thing to note is that if it is viewed that the report is too strong , then there might be signs of inflation and that would lead to a fall in the value of the dollar .
Stocks will generally rise with a favourable GNP report as it means that the economy is growing and would probably mean increased profits for firms and their shareholders. As noted above , as long as the GNP report does not show signs of inflation, then stocks and the market indexes are likely to rise.
For bonds it is important to note that bonds normally favour negative economic reports. If the economy is sluggish or not doing well, it usually means that interest rates will fall and bond prices will rise. As such if the GNP is rising showing that the economy is doing well , corporations will probably borrow more and thus cause interest rates to rise and the bond prices are likely to fall .
Understanding how the GNP works is the beginning of a good fundamental forex trader and doing the same for all the currencies that one is trading can give the fundamental forex trader an edge over other traders.
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