Effect of economic news on trading markets
During recent years with the spread of the internet and social media globally there has been a large increase in the volume of financial and economic news available to investors and traders daily. The news was restricted to print media in the past and in traditional markets but now the internet and satellite television as important media sources for financial news are available for investors and traders. With this overwhelming flow of information, the impact of economic news on different market prices is undeniable. Economic news along with political news are categorized in the group of news that moves the market.
How economic news affect trading markets?
There many market characteristics affected by economic news including market returns and volatility that can cause movements in prices.
On the commodities trading markets like the oil trading market, prices respond to macroeconomic news. Researches indicate that commodities along with other trading assets and major exchange rates have been relatively sensitive to such news. Where the theory of commodity prices influenced by news has risen as commodities have become increasingly financialized. It is notable that many professional investors believe gold, among commodities acts as safe-haven when bad economic news emerges.
Researches over history have shown mass economic news can influence people’s beliefs or behavior in general that leads investors or traders to make decisions that may cause uptrends or downtrends. By the mean, news affects market movements, because of adding information to the expectations of investors and traders.
Trading market analysts keep studying different models based on economic news to forecast asset prices in trading markets and find out how prices respond to the news. The aim of these researchers is to measure the correlation between economic news and trading markets like stock or commodity markets movement. Correlation does not necessarily mean causality. Sometimes there is little inter-relationship between the economic news and its effect.
Types of economic news affecting markets
There are some economic factors that can affect trading market prices in cases of related news spread. News releases on earnings and profits and future estimated earnings of different countries would have an impact on the company’s stock price trends. Similarly announcement of dividends, the introduction of a new product, new contracts, takeover or merger, etc. would influence stock market prices as well.
Economic changes around the world can affect important trading stock prices. For example, a rise in energy costs would cause lower sales, followed by lower profits and lower stock prices. Changes in economic policy may lead to a downturn in economic activity and a fall in stock prices as well. If a new government comes into power and leads to changes in inflation and policies stock prices move.
As another example you might have heard that stock prices experience downtrend due to unemployment statistics or the market prices raised due to news about inflation. So the effect of economic news on trading markets is undeniable. Sometimes this news can be seen as good for trading markets, and sometimes not.
Investors and economic news
To be a successful investor it is crucial to make decisions considering all available information and fundamental factors that may affect market trends. Denying the relationship between economic news and asset price movement is never a wise position. Following economic news will help improve risk management measures and leads to better decision making.
To understand better assume that in the stock trading market an economic news emerges that the firm announces that a particular company is considering filing for bankruptcy. Such news has a definite effect on stock price, and if the company is large enough on the market. So any economic news related to different trading markets certainly affects the investor’s decision whether to buy or sell assets.
Any trader or investor must keep a sharp eye for economic news since stock or even commodity prices react to announcements about the money supply, inflation, real economic activity, etc. These announcements are used to identify the unexpected price trends in order to avoid the surprise of assets prices movements since economic news is highly correlated with higher market volatility.
Investor Sentiment and market responses to economic news
Decisions in trading and investing markets often involve investors capital so the process of making trading decisions in any particular market is often complicated because of the vast amount of information and factors available to each individual investor that can affect the price trends. The pace and rate of information and news arrival have intensified as mentioned earlier due to internet-based trading in different markets. Investors must take into account all the rapid information in order to make accurate decisions. It is undeniable that investors’ and traders’ sentiment affects price volatility. Volatility could be influenced by investor sentiment which may arise from the tone of economic news.
Economics is one of the factors influencing the trading market index. Macroeconomic factors such as interest rates, inflation, unemployment and economic growth often shift market prices. The stock market is always rooted in greater economic growth because it usually means more profit for companies, and more profit tends to grow the value of stocks. Reducing interest rates often raises markets because they are seen as controlling economic growth. High inflation has the opposite effect, as it indicates that interest rates will rise in the near future, thus slowing economic growth. Rising unemployment predicts low economic growth, and declining unemployment tells stock investors that growth is on the way.
Base on the theory economic news is one of the most important factors that affect the demands and investing opportunities in different trading markets. Interpreting the stock price movements affected by economic news is common among economic experts and professional traders.
Although the importance of different economic news is not same for all investors and traders in different markets it cannot be ignored that news related to the economic conditions such as unemployment rate, Inflation, and many other similar issues in the economy always draw investors and traders attention since it provides the possibility to predict the price trends and avoid being surprised.