Central Banks And Its Influence On The Stocks Futures Market

Central Banks And Its Influence On The Stocks Futures Market

The decision of the central bank has one of the major impacts on market movements. The central bank aims at maintaining stability in prices and it supports the economies upward growth.

The type of futures contract that one is trading in will have an impact on the decision of the central bank. Whether it be the stock, commodities or the Forex market, the increasing and the lowering of the interest rates by the central bank will have an impact on each of these asset classes. One needs to know what the impact will be like to place a trade based on the central bank’s decision. Did you read about the Crypto Code scam?

 

Stocks

The stock futures market is looked at closely when the central bank alters the rate of interest. The day when the central bank is about to declare the results you can see that the stock prices will be highly volatile. This is because the traders in the futures market are waiting for the result to be out before they start to take any trading position. Before the central bank meeting, there will be a discussion among the analysts about what may be the outcome of the meeting. Will, there be an increase or a decrease in the interest rate or will the interest rate be kept the same? This is nothing but an opinion of the analysts. However, the active trades will wait for the result to be out before they place any decision.

 

When the rate of interest is increased then the stock market traders view this as negative. This is because when the interest rate is increased it will have its impact on the economy as it will make it difficult to get money on a credit. The consumers will lower their large purchases. When the rate of interest is lowered then this will cause the credit to get cheap, the households will be able to make more purchases, and the economic environment will be such that it will help the market.

Conclusion

The central bank’s decision on the rate of interest is thus a very important data for the futures traders. The decision of the central bank is watched closely. A rate cut is seen as a positive thing by the market and an increase in the rate of interest is seen as negative. If there is no change then this does not have an impact on the equity valuations.