Understanding The Influence Of Global Events On Financial Market Shifts

In today's interconnected world, the influence of global events on the financial sector can be significant. Financial instruments are sensitive to changes in economic, geopolitical, and market conditions. This has been often seen in the over-the-counter (OTC) marketplace and forex trading. The OTC market, a decentralized arena for trading financial instruments, such as derivatives, currencies, stocks, bonds and commodities, operates on a unique dynamic influenced by a myriad of factors. Global events play a crucial role in shaping the landscape of this market.

With billions of CFD trading and buying of shares occurring daily worldwide, any major economic event, from pandemics to geopolitical shifts, may have an immediate and profound effect on the prices and rates of commodities or shares.

Global economic shifts frequently result in the emergence of new variables that raises volatility and unpredictability in the market, such as major price fluctuations, thus requiring traders and investors to pay closer attention on economic calendars, global news, and central bank statements.

When it comes to trading currencies, interest rates are frequently determined by central banks, and fluctuations in these rates can affect the value of currencies. Higher interest rates tend to attract more foreign money seeking higher returns, thereby leading to an appreciation in the value of the currency in the market. Conversely, lower interest rates can result in a decline in currency value. The value of a currency can be influenced by economic indicators such as GDP growth, employment data, inflation rates, and manufacturing output. Depending on traders’ perceptions of the state of the economy, these figures possess the power to swiftly alter the movement of currency pairs.

Political stability has a significant impact on the OTC marketplace. A country’s capacity to draw in foreign investments and strengthen its currency value may be ascribed to its political stability and implementation of sound economic policies. Additionally, the difference between a nation’s imports and exports, or trade balance, can impact the value the share market. A trade surplus tends to make the currency stronger, while a trade deficit might cause the currency to weaken. Geopolitical events, including wars, elections, or any global conflicts, can cause uncertainties in the OTC market and financial markets

While a negative news or event might strengthen safe-haven currencies, positive news can encourage increased risk-taking and higher-yielding currencies. Changes in commodity prices often have an impact on the currencies of countries that export commodities. For instance, an increase in oil prices can benefit oil-exporting nations as it would bolster their currencies. The Middle East is home to some of the world's largest oil-producing nations, such as Saudi Arabia, Iraq, and the UAE. The energy resources of this region have a significant impact on international relations, energy markets, and global economic and political dynamics.

Furthermore, while recessions or slowdowns in major economies have the immense potential to affect financial markets and cause risk aversion, broader economic trends, such as the advancement of tourism and infrastructure, have the potential to accelerate the global economic cycle. Gulf Cooperation Council (GCC) countries have witnessed tremendous economic growth and modernisation over recent years. For instance, Dubai, Riyadh and Doha have emerged into prominent global economic cities with its remarkable infrastructure, iconic landmarks, as well as hosting of significant global events, such as the World Cup 2022, Expo 2020, and COP28. Additionally, it is expected that the financial industry in the region will continue to grow, and several new OTC trading opportunities will arise as the Kingdom of Saudi Arabia looks forward to hosting the 2030 Expo.

In the UAE, the number of retail leverage traders has increased significantly in 2023. In the previous year alone, as many as 18,500 traders have opened their first trades, registering a 9% increase in the number of foreign exchange (FX) and contracts for difference (CFDs) traders, as stated by a recent Investment Trends report. Currently, there are around 49,000 leverage traders in the country.

In light of all the aforementioned factors, it is recommended to consider algorithms, technical strategies and other trading tools into investing strategies. With the help of these technical innovations, investors can swiftly and efficiently examine enormous volumes of data and market trends to make wise trading and investment decisions based on real-time information.

— The author is the Managing Director at Orient Finance