Archive for Economics & Fundamentals

Australia Inflation: Did RBA “Tighten” Too Soon?

By Orbex

At their last meeting, the RBA declined to extend the yield curve control provision. For practical purposes, this amounted to a tightening of policy, because it allowed interest rates to go higher for longer-term bonds.

The market reacted accordingly, but relatively quickly that position unwound as covid cases rose across the country.

The latest lockdowns underscore the unique position that Australia is in and the uneven impacts of covid within the country. For example, the most recent lockdowns also led to the suspension of the travel bubble with New Zealand.

Over the weekend, South Australia’s Premier assured that they were on track to lift lockdowns by mid-week. Meanwhile, the Premier of New South Wales (which surrounds the Capital Territory and contains Sydney) was denying rumors that the lockdown could extend to September.

So how is the new round of lockdowns going to affect the Australian economy?

What’s special down under

Covid cases remain on the rise, with the latest figures being the worst since August of last year. This is because Australia is in the middle of the winter period when covid spreads more easily.

And while a “massive” amount of daily new cases for other countries would be measured in the thousands, Australia is locking down to prevent less than 200 daily new cases.

Australia’s initial success in keeping the virus at bay allowed the country to avoid the bulk of the economic damage other countries suffered from.

Additionally, Australia already saw a significant surge thanks to the high prices of commodities, their primary export. So, we can expect the “rebound” to not be as strong.

Where things are going

One of the ways we can monitor the economic situation in Australia now is with inflation data, which we can expect to be published tomorrow night. It’s kind of an event since the RBA only publishes its inflation assessment once every three months.

While many other countries are fighting off inflation worries, Australia’s relatively small amount of deficit spending means there is less price pressure.

In addition, the stronger Aussie dollar means that imported goods are cheaper, thus cutting inflation worries. And now that Australia is facing another round of economic fallout from the rise in delta variant cases, inflation could be muted for an extended period of time.

What we are looking for

Economists are anticipating the Headline CPI to show quarterly growth of 0.7%. This is a minor acceleration from the 0.6% seen in the first quarter.

Moreover, they expect the Trimmed Mean CPI (which the RBA uses to set policy) to grow at 0.5% compared to 0.3% in the first quarter. That is bang in line with the RBA’s target.

Generally, inflation’s primary impact is based on how it will affect central bank policy. However, the consensus appears that the RBA is going to stick to its schedule. At their last meeting, they insisted that lockdowns only have a transitory effect on the economy. This suggests that they won’t hesitate to continue the asset purchase reduction in September.

So, we’d have to see a significant beat or miss of expectations in order to see a major reaction in the markets from tomorrow’s data.

By Orbex

Intraday Market Analysis – S&P 500 Resumes Rally

By Orbex

SPX 500 breaks to new high

SP500

The S&P 500 rose back to its previous high on strong corporate earnings.

The index has met strong bids around 4250, the top range of the late June consolidation. The subsequent surge gave no room for sellers to get a foothold.

An overbought RSI may prompt intraday traders to take profit at the peak (4392). 4380 has been established as fresh support where buyers could be lurking around. Further below, 4350 may provide another layer of support.

On the upside, a bullish breakout would extend the rally towards 4440.

USDCAD hovers above supportUSDCAD

The Canadian dollar stays muted despite a slight improvement in retail sales in May. The greenback has met stiff selling pressure near February’s high (1.2800).

The sharp drop is likely due to profit-taking after a rally above the resistance of 1.2650 from the daily chart. If longs succeed in holding 1.2500, the sentiment would remain bullish. Failing that, the pair may retreat to 1.2300.

The RSI is rising back to the neutrality area, a sign of buying interest in the demand area. 1.2730 would be the immediate resistance ahead.

EURGBP bounces off demand zone

EURGBP

The pound remains under pressure after lackluster retail sales ex-fuel in June. The pair’s advance beyond 0.8610 has forced sellers to cover their positions.

The price has dropped back to the demand zone at 0.8550 for accumulation.

The RSI has recovered back to the neutral area. A rally above 0.8585 would confirm the bullish bias and rekindle buyers’ enthusiasm.

0.8610 is the next resistance, then a break above 0.8660 may trigger a runaway rally. On the downside, 0.8510 is still key support.

By Orbex

Government restrictions in China weigh on financial markets

by JustForex

Against the background of the continuing season of corporate reporting in the United States, major stock indices closed trading at record highs on Friday, with the Dow Jones Industrial Average breaking the 35,000 mark for the first time ever. According to the results of the week, the Dow Jones added 1.1%, the S&P 500 increased by 2%, and the Nasdaq – by 2.8%. The upcoming week is expected to be more intense with the Fed meeting and many important economic statistics. But most analysts expect the Fed to give a clearer picture of its plans to reduce the quantitative easing (QE) program at its annual conference in Jackson Hole in late August. Also, in the coming week, financial reports of a number of technology giants will be published, including Tesla Inc., Apple Inc., Alphabet Inc., Microsoft Corp., and Amazon Inc.

Eurozone stock indices closed in the green zone on Friday. The Stoxx Europe 600 overall index increased by 1.1%, Britain’s FTSE 100 added 0.9% and Germany’s DAX 30 increased by 1.0%. Friday’s data on business activity (PMI) showed a positive trend and an acceleration in the pace of recovery in the EU. However, the new wave of the coronavirus pandemic could be a major challenge to maintain the current pace of recovery. More people in the UK are being forced to self-isolate under government regulations, but due to growing shortages in supermarkets, food retail staff won’t be quarantined for ten days. The European airline Ryanair raised its annual traffic forecast amid strong summer bookings.

The 10-year Treasury bond yield added 2.2 basis points on Friday but remained 1.4 basis points lower at the end of the week. Government bond yields and gold prices are moving in opposite directions.

The situation in the oil market remains the same. The global rise of COVID-19 cases makes the outlook for fuel demand worse. But thanks to an increase in demand for fuel in the summer, oil prices remain within the $70 a barrel range.

Asian stock indices are falling as fears of stricter regulation by Chinese authorities led to the fall of many Chinese stocks. China is tightening control over hidden local authority debt. China’s blue-chip index, the CSI 300, decreased by 2.4% to its lowest level in 10 weeks as the education, real estate, and technology sectors are concerned about stricter government regulations. There is also a fall of Chinese companies observed on the US stock market. But many analysts are confident that delisting of Chinese companies is technically impossible, so there is no need to worry about it. Relations between the US and China remain tense as talks between the US Undersecretary of State Wendy Sherman and Chinese Foreign Minister Wang Yi have reached an impasse. Meanwhile, curfews are planned to be imposed in Thailand and Vietnam due to the growing number of Delta strain cases.

Main market quotes:

S&P 500 (F) 4,411.79 +44.31 (+1.01%)

Dow Jones 35,061.55 +238.20 (+0.68%)

DAX 15,669.29 +154.75 (+1.00%)

FTSE 100 7,027.58 +59.28 (+0.85%)

USD Index 92.91 +0.08 (+0.09%)

Important events for today:
  • – Germany Ifo Business Climate Index (m/m) at 11:00 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (GMT+3).

by JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

Key events this week: FOMC decision, tech titans’ Q2 results

By Han Tan Market Analyst at Exinity Group

It’s set to be another major week in the markets, with the Federal Reserve meeting to decide on the future of US monetary policy, while Big Tech companies such as Apple, Microsoft, Alphabet, Facebook and Amazon are set to report their latest quarterly financial performances:

Monday, July 26

  • Japan Jibun Bank PMIs
  • Germany IFO business climate and expectations
  • Tesla earnings

Tuesday, July 27

  • IMF World Economic Outlook update
  • China industrial profits
  • US consumer confidence
  • Microsoft, Apple, Alphabet earnings

Wednesday, July 28

Thursday, July 29

  • Eurozone economic/consumer confidence
  • Germany unemployment, CPI
  • US Q2 GDP (advanced), initial jobless claims
  • Amazon earnings

Friday, July 30

  • Japan industrial production, retail sales, unemployment
  • Eurozone unemployment, CPI, GDP
  • US personal income/spending, consumer sentiment, core PCE inflation

 

Fed to hearten dollar bulls?

Last week, the equally-weighted US dollar index set a new year-to-date high, only for such lofty levels to come undone as the week went on. Still, having pulled away from its upper Bollinger band, this index appears to have cleared some froth and in so doing, has paved the way for more potential upside.

Of course, dollar traders will be closely monitoring what the Fed has to say this week about the central bank’s plans for tapering.

Recall at their last policy meeting in June, the FOMC surprised markets with a hawkish tilt in the famous Fed dot plot, penciling in two US interest rate hikes for 2023. That sent the buck surging! However, since then, Fed Chair Jerome Powell has reiterated a dovish messaging, saying that policymakers are in no rush to ease up on their asset purchases that have supported financial markets since the pandemic.

Although there won’t be another Fed dot plot issued this week, market participants will be closely monitoring the Fed’s policy statement and Fed Chair Jerome Powell’s post-meeting press conference to get more clarity on the central bank’s next moves, especially in light of the stunning US economic recovery.

Over the coming days, should either the Q2 GDP, consumer confidence, initial jobless claims, personal income/spending, or even the Fed’s preferred inflation gauge show that the world’s largest economy is taking bigger strides into the post-pandemic era, that could hasten the Fed’s paring of its bond purchases, despite what dovish officials have been saying publicly. And global investors are set to use the hard US economic data to test the Fed’s resolve in sticking to its ultra-accommodative stance, and manifest their outlook for US monetary policy via the greenback.

More substantive signals that the Fed is getting closer to tapering could send the US dollar index sustainably above the 1.10 line.

Nasdaq 100 poised for fresh peaks

The futures contracts for the Nasdaq 100 are holding above the 15,000 mark at the time of writing, after having registered a close above that psychologically-important level for the first time in history this past Friday. Such has been the resilience of tech stocks that they’ve been able to overcome the mid-month wobbles to post a new record high!

Tech stocks have been fuelled by better-than-expected earnings, especially given Twitter and Snap’s stellar Q2 results announced late last week. Note that the heavy hitters that are scheduled to reveal their respective Q2 results in the coming days have a combined market capitalisation of almost US$ 10 trillion:

(as of US market close on Friday, 23 July)

These 6 companies account for about a quarter of the S&P 500’s total market cap of US$ 39 trillion and more than half of the Nasdaq 100’s US$ 17.1 trillion. In other words, how these stocks move collectively could have an outsized impact on the broader index.

At the time of writing, the Nasdaq 100 minis are flirting with overbought territory. However, with momentum still pointing northwards, one would think that fresh record highs are there for the taking over the near-term for this tech-heavy index, especially if we see some positive surprises in the Big Tech earnings due this week.

 

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

How food prices are affected by oil, trade agreements and climate change

By Wyn Morgan, University of Sheffield 

Concerns about inflation rates have risen as the UK economy begins its much-needed recovery from the effects of the pandemic. The Consumer Prices Index, the measure most commonly used to measure inflation, rose by 2.5% in June 2021, the highest level for three years.

That headline rate hides differences between the various things we buy, such as clothes, cars, leisure and food. In fact, food prices have actually been falling over the past few months compared to where they were a year ago. But there are fears they could rise – steeply – soon.

In the UK, food accounts for around 10% of total household expenditure. Everyone has to eat, so everyone is affected by price changes.

That said, the impact of rising food prices varies according to income – richer households are more able to absorb rising costs. Poorer households, who spend a greater proportion of their income on food (nearer 15%), are much more affected by it.

Overall, demand for food is relatively constant – we may change our consumption patterns between shops, brands and sometimes types of item (fresh or long-life orange juice for example) but in the main, our total demand is stable. This means that price changes are often driven by supply factors. These can be short or long-term, and driven by either domestic or global factors.

A short-term cause might be the weather causing droughts or floods which reduce output from farms, forcing prices up. Long-term factors include climate change or planting crops such as coffee or cocoa which take several years to reach maturity.

But we also need to recognise that people do not generally eat the initial food products of the agricultural sector. Instead, we tend to eat products that have been through a chain of processors and retailers. This means we should be cautious about making a direct link between weather effects on agricultural output and the prices we pay in the supermarket or corner shop.

The cost of food products also includes many non-edible aspects such as packaging, transportation, marketing and so on, which can mask changes in the cost of the actual food. So too can competition between retailers as they seek to keep customers loyal by dropping prices where possible.

The global food basket

Equally, we need to recognise that many countries do not produce all of their own food from domestic resources. The UK imports about 40% of the food it consumes ranging from items such as bananas, tea and coffee through to bacon, butter and lamb – products that it also produces domestically.

Supplies from abroad can be greatly affected by shocks to the system, such as the delays experienced during the pandemic, or trade policy changes. All these can help drive up prices, as can fluctuations in currency exchange rates.

Many countries also import globally traded raw commodities, such as wheat or corn, and the price of these are determined by global macroeconomic factors – a key one being the price of oil.

Oil matters for two reasons. First, the costs of transporting bulky commodities are very sensitive to increases in the price of oil. Second, oil is a key component of fertiliser and if its price rises, the cost of fertiliser rises, agricultural production costs rise and output prices can rise as a result. This can often be passed on through the food chain to the consumer in the form of higher retail prices – hence food price inflation.

Before the 2008 food price inflation spike of August 2008, when it hit 14% in the UK, oil prices had reached nearly US$140 a barrel (£102), having been only half that value a year earlier.

Other factors driving this price spike included: a drought in Australia affecting wheat prices; a cheaper US dollar meaning demand for food grew as other countries could afford to buy more with their own currencies; and the impact of subsidies to farmers in the US to grow maize for fuel rather than food, which drove up the price of animal feed.

This was truly a global crisis as food prices rose rapidly in many countries leading to food shortages in low-income countries such as Niger, riots in others (such as Mexico and Indonesia) and governments attempting to control price rises by banning exports (Argentina and Russia).

Food supply will remain a global issue, which means controlling domestic food price inflation is not down to the government of the day. In the UK, consumers may have become used to relatively low and stable food price inflation rate over the last few decades – but we cannot assume this will always be the case.The Conversation

About the Author:

Wyn Morgan, Professor of Economics, University of Sheffield

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

Week In Review: Delta Variant Fears, ECB Tweaks Guidance, Blowout Earnings

By Lukman Otunuga Senior Research Analyst, ForexTime

It was a rough and rocky start to another busy week for financial markets.

The sentiment pendulum swung deep into risk-off territory on Monday amid concerns over the Covid-19 Delta outbreaks threatening the global economic recovery. As risk aversion engulfed global markets, investors scattered from riskier assets to safe-haven destinations. On a brighter note, OPEC+ finally struck a deal to raise production after Saudi Arabia and the United Emirates reached a compromise. In the United Kingdom, Monday was also ‘Freedom Day’, marking the end of coronavirus restrictions.

An air of caution lingered across markets on Tuesday as investors remained jittery over rising Covid cases. However, the mood started to improve as the session progressed with the S&P 500 recovering much of the previous day’s loss. On the earnings front, Netflix reported second-quarter earnings that missed expectations but the company’s revenue slightly beat estimates. 

Our trade of the week was the euro which was on standby ahead of the crucial European Central Bank (ECB) meeting on Thursday. We took a deep dive into what to expect from the ECB meeting and how the EURUSD could react to the various outcomes.

Mid-week, markets continued to stabilise with the sentiment pendulum approaching risk-on territory. Interestingly, the dollar index (DXY) hit its bests level since the start of April despite the improving market mood while gold dipped below the psychological $1800 level.

All eyes were on the ECB meeting on Thursday which offered no major surprises. As widely expected, monetary policy was left unchanged but the forward guidance on interest rates was revised to reflect the new 2% inflation goal. While the euro depreciated against every single G10 currency following the meeting, the EURUSD was still unable to break below 1.1751.

The Purchasing Managers’ Index (PMI) for the Eurozone, United Kingdom and the United States were under the spotlight on Friday. While PMIs from Europe beat expectations and remained in expansion, they cooled in the UK and US in July.

In the commodities arena, it was a choppy week for gold. Near the start of the week, the precious metal remained under the mercy of a stronger dollar and rebound in U.S Treasury yields. Prices lingered around the psychological $1800 level as gold drew strength from surging global coronavirus cases. Should prices linger around this level for too long, bears may steal back control with the next key level of interest found at $1760. If prices can push back above $1800, gold has the potential to retest $1825 which is just below the 200-day Simple Moving Average.

A barrage of blockbuster corporate earnings brightened the market mood and injected equity bulls with fresh inspiration near the end of the week. U.S stocks rallied on Friday, propelling the Dow Jones Industrial Average through the 35000 level for the first time. This feel-good sentiment also propelled the Nasdaq and S&P 500 higher with both ending the week at record highs.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Global Investing: Here’s the Message of Consumer “Overconfidence”

Bear markets tend to follow this particular sentiment

By Elliott Wave International

In many global regions, economies are flourishing.

For example, here are two headlines about the U.S.:

What America’s Startup Boom Could Mean For The Economy (npr.com, June 29)
Inflation Rose in June as Economic Recovery Continues (WSJ, July 13)

The goings-on in the United Kingdom provide another example. Employers in the UK are hiring people at the highest rate in more than six years. Plus, business and consumer spending are climbing swiftly — at the fastest clip in a quarter of a century.

So, it wasn’t surprising to see this June 18 CNBC headline:

Morgan Stanley picks the global stocks set to ride Europe’s expected boom

However, here’s what investors need to know: An economic boom follows an uptrend in the stock market, not the other way around. In other words, history shows that a booming economy may serve as a contrarian indicator.

Indeed, here’s a chart and commentary from our July Global Market Perspective, a monthly Elliott Wave International publication which provides forecasts for 50+ worldwide financial markets:

The chart shows that consumer confidence in the European Union two months ago eclipsed the survey’s pre-pandemic optimism from February 2020. Financial markets have traveled this territory before. In May 2020, GMP discussed two prior outbreaks of consumer overconfidence and noted that bear markets followed such sentiment. In the case of this survey, the all-time high came in May 2000.

The Stoxx 600 peaked in March of that year and fell 60% over the next 24 months. Consumer confidence peaked two months before the stock market’s top in July 2007, and the Stoxx 600 declined 61% to March 2009.

Yes, consumer and business confidence might climb even higher. However, the point is: The “boom part of the cycle” appears to be in the “mature” zone. Another key takeaway is that many in the investment community see the economic upturn as a sign that the bull market in stocks will persist when history suggests just the opposite.

The best way to get a handle on the world’s stock markets is to use the Elliott wave model, which reflects the repetitive patterns of investor psychology.

After all, as Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior notes, “The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.”


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2020 Olympics & The Japanese Economy

By Orbex

With the 2020 Olympics kicking off after a year-long delay, just how much of a cost to the economy will the games be? Can there be any benefits of a tournament without spectators?

Hosting the Olympics can be costly, and even bidding on the event comes at a price. Japan already had this experience, as Tokyo spent almost $150m on its failed 2016 bid, which eventually went to Brazil.

Countries that host the games always go over budget.

In fact, analysts still blame the 2004 Athens Summer Olympics as a contribution to the country’s economic crisis. With buildings and stadiums being abandoned and left in ruins as the country can no longer afford to sustain them.

Could this happen to Japan?

Well in general, the Olympics do receive a lot of revenue, due to substantial TV deals and sponsorships. Then there are the host cities themselves, hoping to see economic gains from job creations, tourism, and investments in infrastructure.

However, the 2020 Olympic games have had to worry about the burden of the pandemic. This has added billions of additional costs. Revenues are likely to take a hit because stadiums will be virtually empty, as international spectators will be unable to attend.

How can this affect the Japanese Yen?

Should consumer spending increase during the games, then we could see a surge on the Japanese Yen currency across the board. This could keep the USDJPY pair, for example, from spiking over $111.00, which we saw only a few sessions ago.

In essence, Japan’s economy does not look to really benefit from hosting this summer’s games, as it seems the cost is likely to outweigh the profit.

However, should Japan benefit from hosting such a prestigious event, then we could see a move to the lower $107.00 region before the games end.USDJPY

By Orbex

Fed, Inflation, And The Housing Bubble

By Orbex

Yesterday, the US’ second-largest homebuilder, D.R. Horton, announced their quarterly results. These gave some interesting insights into the problems the housing sector is facing. The current situation gives more reason to suspect the Fed will be hesitant to raise rates, despite inflationary pressures. Considering the housing market caused the last recession, it’s natural for people to be concerned about it now.  Especially if we consider that some of the underlying reasons for the housing crash of 2008 haven’t been fully resolved. The Fed, for example, is still buying Mortgage Backed Securities to this day. The default rate on home loan payments has not returned to pre-2008 levels.So how is this going to affect the economy?

Complicating factors

When there is high inflation, people try to find alternative places to store value.One of them is in construction since the logic that property prices only go up in the long term. Even in the aftermath of the sub-prime crisis, the drop in property prices was momentary. Average home prices are way above what they were, even at the height of the last bubble. Speaking of which, D.R. Horton reported that home values in their inventory have gone up 13% over the last year. This is the same amount as reported by KB Homes earlier. However, we have to remember, that the cost of homes is not considered as part of inflation. Typically house prices have risen at twice the official inflation rate.

Where we are going with the Fed

D.R. Horton’s CEO had some interesting observations about the state of the market. The rising cost of lumber and the difficulty to find employees impacted the company’s ability to deliver. In fact, despite record orders, the company planned to slow down production over the next few months. Additionally, they haven’t had any problems in raising prices, passing on the increased costs to customers.With the Fed keeping rates low, mortgage rates are also low, meaning people are able to take on larger loans to buy houses. That implies that housing prices could continue to rise at an accelerated rate. While not part of the calculation for inflation, the higher prices definitely impact American’s pocketbooks.Housing, whether paying rent or dividends, is the largest expense for households. Rising prices and increased indebtedness in the medium term would likely impact consumer sentiment.

What about a bubble?

Following the rate cuts by the Fed, home sales in the US have skyrocketed to pre-sub-prime levels of between 750K to 1.0M new homes per month. On Monday, we will get the latest report, which is projected to show 800K new homes sold in June, compared to 769K in May. For now, all actors appear to be confident that sales and prices will continue to increase. D.R. Horton has substantially increased their inventory in anticipation of double-digit volume growth during 2022. But if the Fed raises rates an appreciable amount, on top of significant price increases for homes, there is a chance the market could suddenly dry up. That could put the housing inventory situation in a similar predicament as right before the 2008 crisis.

By Orbex

Are middle lanes fastest in track and field? Data from 8,000 racers shows not so much

By David R. Munro, Middlebury 

As a short-distance track and field runner in high school and college, I often found myself wondering which of the eight or sometimes nine lanes on the track was the fastest. It was conventional wisdom that the middle lanes – lanes three through six – were the best.

This idea, in a way, is baked into the rules of track and field. In events with multiple heats – from the college level all the way to the Olympics – the people who run faster times in earlier heats are assigned to middle lanes in later heats. In other words, the fastest runners are rewarded with what are, supposedly, better lane assignments.

My short-lived track career is long behind me, but in my professional life as an economist, I think a great deal about using statistics to extract meaning from data. With the Olympics on my mind, I decided to examine the validity of lane assignment folklore from my days as a sprinter.

Using 20 years of track and field data from the International Association of Athletics Federations, I found that the long-held beliefs about lane advantages are not supported by the data. And in fact, for the 200-meter sprint, the evidence suggests that lanes often perceived as the least desirable are actually the fastest.

Runners in a staggered spacing coming around a turn.
Tighter turns and staggered starting positions supposedly make inside and outside lanes slower.
André Zehetbauer/WikimediaCommons, CC BY-SA

Myth of the middle lane

If lane assignments do matter, their impact would be most noticeable for events where the runners have to stay in their lanes for all of, or at least a large part of, the race, like 100-meter, 200-meter, 400-meter and 800-meter events.

In my experience, the myth of the middle lane being the fastest is most commonly associated with fast-paced races that also include corners, so the 200 and 400. There are two rationales behind this point of view, and they have to do with why the inside and outside lanes are bad, more than why middle lanes are better.

The reasoning for why inside lanes are bad is that in races with turns, the inside lanes are slower because the corners are too tight. Indeed, researchers who study the biomechanics of running find that tighter corners do slow runners down.

The rationale behind slow outside lanes has to do with the staggered starts required to make sure each racer runs the same distance. Due to this staggering, runners in the outside lanes cannot see their competitors for the majority of the race. The thinking goes that outside runners may have less motivation to chase competitors or have difficulty gauging their speed compared to the pack if they can’t see other racers.

Racers at the starting blocks of a 200m sprint.
In the 200-meter sprint, where racers have a staggered start and go around one turn, the outside lane seems to be the fastest.
Nick Webb/Flickr, CC BY

Not all lanes are the same

In most races, the fastest runners are assigned to the middle lanes in accordance with the competition rules. Not surprisingly, the fastest runners – who are in the middle lanes – often win. Are these racers winning because those lanes are the fastest or because those runners tend to be the fastest?

Similar to the idea behind clinical trials for a drug, the ideal way to test lane advantages would be to randomly assign runners to lanes and see how they do on average. Thankfully, there is a subset of race data that does this: Typically, runners are randomly assigned to lanes in the first heats of events. By using data only from first heats of elite track and field events, I was able eliminate the bias from faster runners being assigned to certain lanes.

Using roughly 8,000 individual race results, I found that the “middle is best” belief is not well supported by the data.

For the 100 – which is run on a straightaway – I found no evidence of lane advantages. The myth is less prevalent here, though, so this lack of difference isn’t surprising.

The most striking counterpoint to the “middle is best” assumption is the 200. I found that it is in fact outside lanes that are associated with faster race times – on average lane eight is roughly 0.2 seconds faster than lane two. This is sizable for a race in which the world record is 19.19 seconds. Faster outside lanes make sense biomechanically as tighter corners produce slower race times. But the result seems to disprove the idea that not seeing competitors can slow a runner down.

In the 400, I found no evidence that middle lanes are fastest. All lanes seem to be roughly equal. It is worth noting that there is more variability in 400-meter times, so it is harder to detect small effects, if they exist. But even this nondifference between lanes in the 400 is striking.

In the 2016 Olympics, people marveled when Wayde Van Niekerk won the 400 final from lane eight, the farthest outside lane. The astonishment stemmed from the belief that lane eight puts runners at a disadvantage. The data doesn’t support this. But what is impressive about Van Niekerk’s win is that he was one of the slower runners to qualify for the final – that’s why he was assigned to one of the “least desirable” lanes.

The last event I looked at, the 800, is distinct from the other events above. It has what is called a “lane break,” which is where runners must remain in their assigned lanes for the first 100 meters but are then free to run in any lane they wish. Since the inside lane of a track covers the shortest distance, runners in outside lanes move inward after the break. As they do this, they may have to run a tiny bit farther than their competitors and jockey for position with runners who are already in the inside lanes. I found that racers who start at the very inside lanes ran the fastest times. While outside lanes might have a small advantage over the first 100 meters, runners who have an established position on the inside of the track seem to have an overall advantage.

Next time you’re watching any of the shorter track and field events at the Olympics, listen to see if anyone repeats the old adage that the middle lanes are fastest. The data says this isn’t true, so if someone in the outside lanes takes a surprise gold, you’ll know to be surprised not because of their lane assignment, but because they were a slow qualifier.

About the Author:

David R. Munro, Assistant Professor of Economics, Middlebury

This article is republished from The Conversation under a Creative Commons license. Read the original article.