The Factors Affecting the Financial Markets

Factors Affecting the Financial Markets

Financial markets provide millions of traders with opportunities for investment and profit, wherein trillions of dollars’ worth of trades are executed daily.

With financial markets being so essential to professionals around the world, it’s equally as important that the performance of these markets is effectively monitored.

Assuming you choose an expert trading platform – such as trading with Skilling, for example – there are various financial markets available for trades, with the stock and foreign exchange (forex) markets being among the most used.

To maintain accurate predictions on the performance of these markets, you must know to what extent any factors are affecting business asset values. These can range from various different global occurrences, including wars, economic changes, and disasters.

To help you fully grasp this, this article will take you through the main factors that are currently impacting the financial markets, and reveal in what manner this is happening.

Factors Affecting the Financial Markets

Russia’s invasion of Ukraine

Russia's Invasion of UkraineOne major factor affecting the financial markets is Russia’s invasion of Ukraine.

Along with Russia, Ukraine is the main exporter of sunflower oil, supplying 60% across the globe. Russia is also the main supplier of Europe’s energy, supplying 40% of Europe’s natural gas imports.

However ongoing destruction in Ukraine and trade sanctions placed on Russia have restricted these imports to Europe. This has led to a massive increase in gas prices in Europe, which reached a record high of €345 per megawatt-hour.

This helped contribute to Europe’s record high inflation rate of 5.9% in February 2022.

This has led to a significant decrease in Europe’s currency, which is reflected in the difficulty to trade forex. The value of the Euro (EUR) against the US Dollar (USD) dropped massively from $1.13 on February 24th, to $1.08 on March 7th, with the Eurozone struggling to maintain stable energy supplies.

On the stock market, energy companies have seen a surge in share prices, since the demand for energy has rapidly increased. Occidental Petroleum Corp (OXY), for example, saw a 96% year to date increase, as well as an $8.1 billion dollar investment from renowned investor Warren Buffet.

The invasion is sure to continue impacting financial markets, so keep watch of these events to influence your trade strategy.

Cost of living crisis

Cost of Living CrisisAnother huge factor affecting the financial markets is the cost of living crisis in the UK.

Due to several reasons, including the invasion, the cost of living in the UK has become hard to manage for working people, whose incomes are not sufficient for the rising expenses.

The rate of inflation has reached 6.2% in the UK, which is the highest in 30 years. Wages have risen only by 3.8% from November, and when taking into account the inflation rate, means a fall of 1% in regular pay compared to last year.

Citizens of the UK are struggling to manage the heightened cost of living – in things like food, tax, and energy bills – and this is displayed in the forex and stocks and share performance.

The value of the Great British Pound (GBP) has seen a substantial decrease, best shown against the US Dollar (USD). On February 23rd, the GBP began quickly falling from $1.35 to reaching $1.30 on March 15th. The unmanageable cost of living crisis is weakening the UK’s currency and all-around economic stability.

Also, SSC plc (SSE) is one of the UK’s largest energy supply companies and has seen a firm increase in share prices amid the cost of living crisis. After Chancellor Rishi Sunak’s spring statement on March 23rd, predicting the cost of the living crisis to be potentially present for the foreseeable future, SSE saw a 7.3% increase from then until April 8th alone.

As the demand for necessities increases amidst the UK’s cost of living crisis, traders can expect weaknesses in the country’s currency, along with rising share prices in companies offering these high-demand commodities.

The aftermath of the pandemic

The Aftermath of PandemicThe world is still reeling from the pandemic, and it’s evident how its aftermath is still impacting the financial markets in various ways.

Since the dangers of the pandemic are still present, lockdown restrictions are periodically taking place, and many businesses are still short of staff and in critical condition. This is having knock-on effects on countries’ currency values.

For instance, COVID-19 restrictions being heavily placed on Europe in the final quarter of 2021, saw the value of the EUR/USD fall from $1.16 on November 4th, to $1.12 USD on November 25th. Since then, with the uncertainty of the pandemic coupled with other factors, the EUR/USD has yet to rise above $1.14.

In regards to the stock market, retail stocks are among those still reeling from the pandemic. For instance, ASOS plc (ASC) began a slow decline in November 2021, likely due to shortages in workers and disruptions to manufacturing and distribution. Since November, ASC has steadily declined to reach a decrease of 46%.

It appears as if both financial markets are showing the damaging effects the pandemic has had on various assets, and the stabilising of both currency values and stock prices remains to be seen.

Now that you know how major factors can have significant impacts across financial markets, you can begin to conduct a thorough analysis of these factors and apply your findings to devising more accurate trading strategies.