What is the market reaction and what does it depend on?Dwain Ross 26 / February / 20 Visitors: 283
What is the market reaction and what does it depend on?
I would like to make a reservation at once that in essence the market does not react to anything, the economic agents that are present in this market react. Moreover, the “market reaction” is characteristic not only for exchange markets, but also for the markets as a whole, although in one thing, in the second case, everything can be generalized with one definition:
Market reaction - the response of market participants to the impact of a market stimulus.
If we are talking about a regular market, for example, an ice cream market, then the point here is generally easy to understand. Imagine you just got bitten by a mosquito, what will be your reaction? I guess the free hand is already swinging to kill the mosquito. And so it happens in the market about the same.
Suppose that in our ice cream market a new player has appeared, an aggressive one, who is trying to take away a niche, moreover, not from anyone specific, but from a piece as a whole. What are the rest doing? That's right, they will strangle him through suppliers or buyers.
A similar example is now being considered in the courts of Belarus. One major grocery retailer found out that its smaller competitors in the regions sell part of the product for less than he does. That is, the small seller acted as an irritant to the market, and naturally, a reaction immediately followed. The large retailer demanded that suppliers of products raise prices for small chains so that the final price also rose. The supplier naturally took such a step, because he did not want to lose a large customer. And now the courts, antitrust litigation, and more.
The reaction of stock markets.
With the reactions of traders, too, not everything is so complicated. In this case, most of the stimuli are any news, in response to which traders open and close positions, which leads to a sharp change in prices. I numbered moments for convenience. Now I’ll try to describe why there was such a market reaction.
Moment number 1 - The growth of gold.
06/19/2019 in the evening, the results of the Fed meeting were summed up, after which it became obvious that the Fed interest rate is likely to decrease this year, which in turn caused a market reaction in the form of a rather long-term fall in the dollar and an increase in the price of safe assets like gold.
Moment No. 2 - Reduction of gold, gap on the weekend.
At the weekend of the G20 summit, Trump announced that he would lift the sanctions against Huawey, which was immediately followed by market reaction expressed in the growth of the dollar and a decrease in the price of gold, as the market began to hope for an imminent improvement in relations between the US and China.
Moment No. 3 - Continued growth of gold.
Unfortunately, Trump did not keep his promise, and the sanctions with Huawey were not completely lifted, and the head of the Bank of England Carney slightly warmed up the market, since speaking on Tuesday he expressed his opinion that trading risks are growing and will continue to grow further. Naturally, the market again reacted to these events.
Something like this happens with any significant news, when something appears, it upsets the balance between bulls and bears, then the movement begins, which we actually call the market reaction.