The financial markets are constantly changing and once profitable instruments fall behind, while others rise to all-time highs.
Keeping track of market shifts can be quite difficult, even for institutional investors using AI and unexpected turnarounds and shifts often lead to billions of dollars in losses.
Therefore, investors are constantly looking for ways to stay ahead of the most influential events that shape market performance - but what are these events and how do they affect the global financial markets? - While many such events may exist, there are a few that exercise oversized influence on the global economy and keeping track of them can help investors generate substantial sums of money in profits.
Biggest events affecting the forex, stock and bond markets
Financial instruments differ greatly from each other in performance and how they reward investors. However, some fundamental factors are common between asset classes like forex, stock and bonds.
Some of the most important fundamentals for stocks also affect other financial markets in a domino effect, as all financial markets are connected to the real economy behind them.
Below we will discuss some of the most important fundamental factors that affect asset prices and shape market trends - both in the short and long term.
Interest rate changes
Interest rates, particularly the dollar interest rates set by the Federal Reserve, are incredibly influential not only for the U.S economy, but also for the global financial markets.
As the de facto global reserve currency, the strength of the dollar greatly influences investor decision making. For example, when interest rates fall, money flows into the stock market and away from the bond market, as yields drop. Conversely, when interest rates rise and the dollar strengthens, dollar bonds and government securities, like T-bills and U.S. government bonds, become more attractive due to higher annual yields.
Therefore, investors pay a lot of attention to interest rates - both in the U.S. and in their home countries. The interest rate upheld by the ECB is also very influential, particularly for the European markets.
Financial results
While forex may be immune to the performance of individual companies, the stock and bond markets are affected by the financial results of some of the largest players on the market.
For example, if Apple posts a disappointing quarterly report, its stock price is likely to drop. While bond investors are typically more resilient, major financial difficulties also put them at risk of not receiving their interest payments. To combat this, companies may resort to refinancing their debt at a higher rate to account for the rising credit risk associated with their core business.
Many metrics are used to measure the finances of a publicly traded company, such as the earnings per share (EPS), the debt to equity ratio, debt to asset ratio and many others.
While these metrics may not affect the entire market, they are the basic tools used by investors to measure the viability and operational performance of their stock investments.
Regulatory changes
The regulatory environment present in a particular industry greatly affects the companies that are part of the industry. Therefore, the tightening and loosening of regulatory oversight can affect the performance of these companies and the financial securities they have emitted for trading and investment.
When major regulations are removed, markets typically tend to go through a bullish period and vice versa.
Keeping track of the regulatory agencies overseeing particular industries can help investors be informed about how each change may affect their investments.
Macroeconomic data
Major macroeconomic statistics leseases, such as employment data, manufacturing output, economic growth and more can affect investor sentiment and market trends.
For example, if economic growth figures are positive, investors are likely to invest more in stocks and bonds and forex pairs in favor of the currency, as economic growth can strengthen the relevant currency - simultaneously affecting the performance of stocks, bonds and currency pairs in the process.
Inflation is another very important metric that is measured by the Consumer Price Index, or CPI.
High inflation is typically followed by tightening monetary policy and rising interest rates, which makes bonds and currencies more attractive than stocks.
Overall, keeping track of a few key macroeconomic indicators can help investors understand when and why the financial markets are shifting in a drastic way.
Financial crises
As positive news from the global markets ripple across economies, the financial crises and busts also have a domino effect on asset prices around the world.
A good example of this was the 2008 financial crisis, which had a profound impact on the global economy and caused a major banking crisis in North America and Europe in particular.
A financial crisis may be caused by a wide range of factors, but the key characteristics include supply and demand shocks.
How to keep track of financial events that affect markets
In order to be informed about major financial developments, it is important to identify the reliable sources for each type of information.
For example, the official websites of central banks provide a lot of information not only about interest rates, but the overall health of the economy as well.
However, it must be noted that data fatigue can also influence your investment decisions and using too much data can add confusion, as opposed to clarity.
