Understanding The Impact Of Current Events On The Market

During the month of February, the market was in the correction mode and the anticipation of the Federal Reserve interest rate hike along with the Russia-Ukraine conflict stress, the market predictions were bleak. Investors were unsure of the impact and how the market would cope. 

Now that the Federal Reserve announcement in regards to the hike of interest rate is out, let’s see how it impacted the market in March and what’s there to look out for in the coming months.

The hike in interest rate is basically an increase in cost of credit or loans which impacts both individuals and businesses. This discourages one from spending and subsequently encourages saving. Money circulation reduction leads to a lower inflation and moderate economic activity. 

Impact on stocks: It tends to leave a negative impact on the stock market. The higher rate of borrowing increases the cost of running a business thus impacting their profits and stock prices. 

The investors reaction to the interest hike is generally to sell off the stocks and invest in safer options.

Impact on bonds: With new bonds offering better interest return it impacts the existing bonds value in the market.

Impact on savings accounts: The increase in interest rate leads to an increase in return on savings accounts as well. As the whole purpose is to encourage savings and thus reduce the ever rising inflation.

While the current hike in interest rate is 25 basis points, the Federal Reserve has also indicated a hike in each of their upcoming six meetings this year, which may lead to around an overall hike of 1.9% by the end of 2022. As an investor, this is the right time to have a diverse portfolio.

On the other hand, the Russia-Ukraine crisis is also having an impact on the market. The markets are likely to remain volatile for the short term. The crisis is more likely to hurt European markets as compared to the US stock market. As Russia produces 10% of the world’s energy, as much as 50% of that is consumed in Europe, leading to increased energy prices there. This will lead to a slight increase in inflation. 

Experts say the highest impact would be seen in Russian stock markets and currency. Even though Russia is the 11th largest economy in the world, it’s still 1/20th the size of the US economy and 1/15th of China’s, thus not big enough to create a huge impact overall. The conflict may end up benefiting the North American energy companies who have seen a steady growth in the past year. 

The markets are likely to be volatile for a short term and lead to slight increase in inflation with higher energy prices. Investors are suggested to focus more on long term rewards and not look at short term impact. Industries which may see a rise in demand would be mainly commodities like natural gas, nickel and gold so one can focus on that to reap the benefits. 

Russian-Ukrainian War: Impact On Markets And Risks Going Forward

As tensions between Russia and Ukraine have increased, current military action increases the risk of prolonged conflict in Ukraine. It raises concerns about the possible impact on financial markets and the global economy. Thankfully, though, history shows that while geopolitical crises between Russia and Ukraine can temporarily roil markets, they generally do not have long-term consequences for investors.

Market Dilemma

If they have a lasting macro-economic impact on large economies, these kinds of crisis have a significant and lasting impact on global financial markets. With Russia’s economy ranked 11th globally, according to the IMF, only 1/20th the size of America and 1/15th the size of China, it is probably not large enough to impact global markets or economic growth. Even though it is suffering considerable economic damage because of the sanctions imposed by the United States and Europe.

Yet, because Russia is also the source of 10 percent of the world’s energy and nearly 50 percent of the energy consumed in Europe the conflict presents risks beyond the two countries’ borders, including higher energy prices and heightened financial market volatility.

High Market Volatility

While markets have been restrained in their response to the invasion of Ukraine, investors should not rule out higher volatility in the days and weeks ahead. We are in the early stages of a new Cold War, and the conflict may take different forms and will probably not get resolved soon. Over time, it will also be harder to get information about what is happening in Ukraine, adding to the uncertainty.

Another factor that will probably influence the situation’s impact on the economy and markets is how Russia reacts to Western sanctions against its financial interests. Inflation is going up, but the American economy is still growing.

In addition to increasing the likelihood of market volatility, the invasion risks compounding inflationary pressures by disrupting oil exports, natural gas, Russian and Ukrainian wheat, and price hikes.

Oil Power Politics

The impact of the conflict can vary depending on the geographic region. Europe, particularly the Baltic countries and Poland, will probably face more difficulties than those less dependent on Russia for energy. Russian gas is a significant source of winter heating in Europe, and the already high prices have harmed European households and companies. Western Europe, especially Germany, does not have an easy alternative energy source to replace Russian natural gas.

The United States economy appears relatively sheltered from conflict. For investors and consumers in the United States, the effects will likely translate into additional inflationary pressures due to higher energy prices.

Conclusion

Diversification and professional management can assist in managing short-term risks while providing long-term benefits. “We own stocks and bonds in multiple regions, nations, sectors, and industries. One of the consequences of our diversified approach is that our clients are usually very little exposed to investment in Russia, less exposure to Ukraine. This degree of diversification may reassure investors in the face of geopolitical events. Or, as Bridges puts it, the only way is to think about the long term. Remain focused, and don’t be scared.”

7 Things to Consider Before Trading in Forex Market

One of the most important things trading in forex markets requires is your time for proper analysis of current market conditions and other global economic factors. 

For the beginners, it might take some time to understand the technical charts and patterns, market fluctuations, fundamentals, and how to get started and what forex strategies to employ. 

So to help you understand better, below are 7 important things to consider before trading in forex market:

Study the market and currency pairs you wish to trade in

Examining the currency pairs is very important as every pair behaves differently and one must be aware of the concerned markets and any important development happening in the respective countries. Top 5 currency pairs are:

  • EUR/USD 
  • GBP/USD
  • USD/JPY
  • AUD/USD
  • USD/CHF

Try your hands on dummy trading first

In order to learn forex trading, you must practice by putting your trading plan to test in actual market conditions without putting real money at risk. After you understand how the market works you can start trading for real.

Understand the importance of Bid-ask Spread

One of the important factors to be considered is bid-ask spread, basically it is the difference between the lowest selling price and highest buying price. A higher spread indicates lower liquidity and lower spread indicates higher liquidity, therefore you must consider the spread and plan your forex trades likewise.

To what extent leverage is offered

Leverage is something wherein your broker allows you to trade in larger volumes with less amount of capital thus, trade size is magnified without investing a lot of money. General leverage would equal 100:1.

Devise practical forex trading strategies

Keep yourself well updated with current forex market news and upcoming trends to formulate forex trading strategies to meet your trading objectives. Some of the popular strategies are: Candlestick strategy, profit parabolic, strategies based on Fibonacci Retracements and technical indicators to name a few.

A tip: Apply your strategies in a demo account first to make sure it is working as expected and will build confidence.

Make your own trading plan

Always make plans after extensive forex market analysis to devise your trading objectives in a well informed manner, having a plan keeps you focused towards your goal while making any kind of trading activity (buy or sell). Keep an eye on any sign  of positive trading signals to grab the opportunity the forex  market has.

Keep a check on your emotions

Make sure you don’t let your emotions get in the way of your trading plans. The forex market is extremely volatile and one can easily get carried away by the emotions, but despite many ups and downs in the prices, one must stick to its plan.

Thus, keeping these seven things in mind before starting forex trading you can begin your journey in a positive manner. Make sure you keep regular checks on your trade by the means of forex market news as the forex market is highly volatile. Meta trader is a good platform to start with.

A Step-by-Step Guide on How to Invest in Cryptocurrency

Cryptocurrency is powered by blockchain technology. It is a channel of information, registration and distribution that a single institution does not control. These tokens are not well understood and are heavily unregulated; most financial institutions do not want to do business there. So, this makes it all the more important to understand all the basic nuances before you invest in crypto.

Cryptocurrency trading for beginners in 7 easy steps.

Step 1: Understand And Distribute Your Investment

Before investing, an investor must understand the asset class and the requirement to invest in crypto with the asset class. 

Industry experts suggest that an investor should only invest 5-10 percent of the portfolio in digital tokens as a rule of thumb. Investing in cryptocurrencies is similar to investing in shares, but not the same. Investors need to learn that cryptocurrency is an exchange medium.

Many cryptocurrencies that have come into the market over the last decade have either flattened or disappeared completely. That means any investment in crypto you make might go very bad.

Step 2: Cryptocurrency To Buy

Surprisingly, there are more than 5,300 digital chips in the world of digital tokens, and this makes a choice more difficult.

The history of cryptocurrency was only a decade ago. Bitcoin is the most exchanged because of its volume and value. For many investors, it is almost a synonym for ‘cryptocurrency’. However, many other cryptocurrencies have done better than the larger ones.

Step 3: Understand The Cryptocurrency And The Share Market

Like all other asset classes, digital tokens have their fundamentals. They are supported by various blockchain technologies, accessibility, mining techniques, addressing the community, and intrinsic value are major points to monitor, suggest industry experts.

Step 4: Choose The Platform To Buy

Digital tokens may be purchased from dedicated cryptocurrency exchanges.

One can purchase cryptocurrency directly from Binance trading or an exchange or some other peer who sells their current holdings. However, investors need to realize that cryptocurrency trading is completely anonymous.

Step 5: Store Your Cryptocurrency

Hot wallets store private and public keys, which link the user to the blockchain where its cryptocurrencies exist. They don’t hold cryptocurrencies per se, but they help you access cryptocurrency on the blockchain with both public and private keys. You need both to complete the transaction. These are called ‘keys’ when unlocking blockchain cryptocurrencies.

The portfolio should be selected according to the balance between safety and convenience. 

Step 6: Keep Your Crypto Wallet Safe

Protecting your cryptocurrency is very important. It gets more noticeable if you use cryptocurrency to purchase products or have a hot wallet. Therefore, when the crypto is online, we must ensure its security. Usually, people prefer to use a VPN (Virtual Private Network) to secure and encrypt online transactions.

Data encryption prevents anyone from seeing users’ online transactions. 

Step 7: Hold And Sell To Book Profit

Cryptocurrency is a long-term game with its foundations and the communities it serves. Their use is distinct and well beyond the access we now know. 

Therefore, they should not be treated as a system of rapid enrichment. Investors buying crypto are expected to have their investment horizon and book earnings periodically, and investors should also know about fraudulent schemes. 

Conclusion:

These are the most important steps to keep in everyone’s mind before investing in cryptocurrency, as they can help you navigate tricky investments.

War Disrupts The Markets- Here Are Some Tips For Investors

The stock markets were seen under pressure from mass sales after Russia ordered military action on Ukraine. This week, markets worldwide have seen bloodbaths caused by the war scenario and geopolitical tensions between Russia and Ukraine. 

Our front-line indexes that were not immune to global concerns suffered, resulting in a decrease of 3.58 percent over the week. 

Investment Impact

United stocks have fallen nearly 8% to date this year, on track for the worst annual start since 2009, and concerns associated with the escalation of the conflict in Ukraine have shaken markets around the world.

While Wall Street finished higher on Friday, with major indices rising between 1.5% and 2.5%, analysts expected markets to experience sales pressure on Monday. Volatility indicators across markets, already at high levels, are forecast to increase this week. 

Moreover, since Russia produces 6% of the world’s aluminium and 7% of its extracted nickel, current stress signals have deteriorated, and prices have risen. 

Aluminium prices are at historical highs, and nickel prices are approaching 10-year highs. In addition, as investors sought shelter to preserve their capital, gold prices reached a peak of 13 months. 

Since these price increases remain a short-term overrun, monitoring the businesses directly affected before making investment decisions is essential. However, as global concerns ease, these prices are also likely to weaken.

Market Impact

Stocks have experienced unprecedented volatility, with commodities not far behind. Several commodity prices have skyrocketed this week due to Russian sanctions. For example, Brent crude oil exceeded $100 per barrel for the first time since 2014 because of concerns about tight supply and growing demand. 

The purchase by investors of derivative contracts to hedge against new losses is likely to increase.

Volatile Market Tips For Investors 

To address the strategy of investors in these plummeting markets. We observed the first significant market correction after a strong performance in 2021.

  • A correction was due when the geopolitical tension became an excuse. Inflation and rising interest rates are the main concerns of equity markets, and geopolitical tensions increase the risk of inflation as energy prices rise.
  • Anecdotally, such geopolitical problems provide long-term investors with a good buying opportunity and we are in structural corrections that should continue in the years ahead, where interim corrections will be part of this journey. 
  • Capital goods, banking, electricity, information technology, and metals were relatively successful sectors, while the automotive, pharmaceutical, and cement industries experienced a challenging quarter.
  • The safe haven assets will be in demand with the United States. Treasury bonds, German Bunds and the Swiss Franc are likely to see major purchases while traders digest the implications of the last round of sanctions.

The market downturn also provides opportunities for savvy investors as it allows for quality stocks at reasonable prices. 

Conclusion

Dominant geopolitical tensions will continue to take centre stage and will be the main driving force behind the international market orientation and investor mood. If the current Russian-Ukrainian conflict continues, markets could sink further into the red.

Furthermore, the economic plan will have a worldwide impact. Given the various triggers and increasing uncertainty, investors are advised to be extremely careful in the short term and avoid aggressive trading.