Since 2021, global stock markets have caught a very turbulent economic environment, with investor confidence waning and short-term trading volatility increasing, with the emphasis in many cases on the commodity trade dispute between China and the United States. Investors were concerned about two important issues: (a) China’s efforts to reform its economy and (b) volatility in world markets. Here is an overview of how these factors affect the Forex and gold index prices.
In China, after the Shanghai Composite Index (SCI) experienced its worst quarterly performance in over a decade, investors became worried that the government intervention and growth spurt planned to support the economy might backfire and cause market weakness instead. Concerns also grew about possible trade wars and currency devaluation. The Chinese government injected liquidity into the market, injecting more than $60 billion into the market via various state owned banks and large financial institutions. The hope was to raise gross domestic product (GDP) and reduce current account deficits, slow depreciation of the renminbi (renewable foreign currency), and facilitate easier access to credit for small businesses.
Investors responded positively to the measures, pushing up global stock indexes. The index finished March at a five-month high, driven by government and institutional investors who purchased companies’ shares in the hopes of reducing losses on their investments. However, amidst this euphoria, analysts warned that the “out-of-the-money” trading hours resulted in a sharp drop in prices. China’s authorities were quick to temper investor optimism, attributing the fall to seasonal factors.
Global stock indexes experienced a different effect in India, one of the fastest growing major economies in the world. The Indian economy experienced a brief slowdown early in the year, but overall growth picked up over the summer. Consumer price inflation is expected to remain under pressure in coming quarters as the end of the current fiscal year approaches. The end of the fiscal year is typically a sensitive period for Indian markets due to currency weakness that usually precedes the release of the Budget. The Reserve Bank of India (RBI) raised interest rates last week, taking rate hikes off the table for the second time in the past year. Consumer price inflation is expected to moderate from current levels, but remains below pre-recession levels.
In emerging markets, where growth momentum is beginning to pick up, expectations are tempered due to economic uncertainties. Emerging markets have seen an abrupt decline in prices over the last two years, with some countries such as Brazil suffering significant drops in commodity prices. The commodities boom is now diminishing, and the major emerging economies have not been able to significantly increase their export base over the last year. This has reduced demand across the board, though China has successfully increased its share of the global industrial market. The slowdown in global financial markets is expected to increase volatility in global stock markets, though this will only be a short term scenario. In China, over the medium term there is a marked improvement in economic conditions, with credit growth and stimulus measures supporting growth in the financial markets.
At the international level, the recent decision by the United States to impose an import tax on softwood lumber could have a significant negative impact on the United States economy. The tax is likely to affect the construction sector, which is one of the United States’ primary sources of private income. Wood is used for a wide variety of projects in the home sector, including flooring, furniture, appliances, and more. Some of the products that wood is used for include flooring, cabinets, countertops, table legs, and more. While some industries are likely to experience a short-term impact from the tax, others that rely on hardwood’s maturation will suffer. For example, the lumber industry is one of the United States’ largest exporters, and a large portion of the country’s annual revenue is generated from the export of wood products.
The strength of global stock indexes is also supported by the chart resistance levels that they display. The top of the retracement trend typically occurs around the middle of the trading day when stock prices are initially rising. Support typically continues to be found around the opening of the week and through the weekend as the strength of the market continues to increase.
There are many indicators that help investors to determine when to enter and exit the market. As was stated above, most of the top financial markets are based on stocks, and the movement of these stocks can be particularly helpful to forex traders. However, other types of trading indices also offer useful data for traders to analyze. The index of one country is not necessarily the indicator of another country. Trading indexes provide insight into the activities of individual currencies, allowing traders to evaluate the performance of their portfolio according to the performance of these markets.