News analysis

Monetary policy maintained by central banks directly affects capital and money markets because it regulates the supply of money and thus directly affects its value.

Economic relations have a major impact on how investors perceive local markets. If a country has strong trade relations, investors view the country as economically stable with the potential for increased profits.

The situation in other markets is important when considering an investment decision as to where and when funds should be transferred between countries. When capital markets in one country move in the opposite direction of the trend, investors will start to suffer losses, capital will move out of the country, and may also trigger a depreciation of the local currency.

One important factor affecting capital markets is the current economic conditions of individual companies. A positive economic situation of a company may encourage investors to invest their capital in its stock. Poor economic conditions, in turn, may cause investors to shift their assets to other companies and/or eventually withdraw capital from that country.

Legal acts, local or international, can have medium and long-term effects on capital markets. Legal acts can create barriers or, conversely, act as an impetus for foreign economic investment.

Weather directly affects the prices of commodities, which in turn affects the companies that use those commodities as raw materials. Rising commodity prices also increase the cost of products. This in turn, depending on the type of business and company, leads to lower profits and negatively affects the company's statements. A deteriorating economic situation leads to a fall in share prices, which in turn forces investors to withdraw capital from that company.

Political situations or conditions have a significant impact on capital markets. When a country has a stable political situation (foreign or domestic - international politics) investors are comfortable investing in that country. On the other hand, in times of political instability, traders may react by withdrawing funds from that market or region.

An economic downturn can have different sources. It can be financial (e.g. a banking crisis), commodity-related (e.g. an oil crisis), political, and others. It is common that during a downturn people tend to withdraw capital from the market in order to "save themselves from the worst moment". Therefore, the areas most exposed to risk are banking and finance, tourism, automotive, etc.

A situation of economic growth in a country or region is favorable for companies that sell their products to consumers in that area. Economic growth generally means that customers are more optimistic and in a better economic position, thus can afford more, and are predisposed to make actual purchases. The expected increase in profits of companies selling more of their products can attract both local and foreign investors who create demand, resulting in an increase in the company's share price

The confidence indicator reflects the overall picture of how people in a country perceive the future outlook. It is also one of the factors that central banks consider when setting their monetary policy. In general, high customer confidence means that customers are more optimistic and willing to spend more on consumption, and as a result, companies will be able to sell more products and earn higher profits. Consequently, the attractive prospects of companies may attract investors believing that share prices will rise in the future.

One-off events can have a significant impact on capital markets. A good example is the organization of the Olympic Games, which requires large investments in infrastructure to attract tourists to the region, and which provides a positive incentive for the companies involved. On the other side of the scale, there are negative events such as terrorist attacks. These are of course rare, but shortly after the September 11 terrorist attack in the US - the major stock markets were closed due to the severe consequences for the capital market. Events in a single company generally do not affect the overall markets, although there are exceptions. An example of such an exception is the Enron case, where over 20,000 employees were laid off due to allegations of financial fraud, after which ENRON went bankrupt. What matters is not the number of employees laid off, but the scale of the company, being one of the major energy companies. Investors should follow the events carefully, for the reason that the consequences in the capital markets may not always be predictable.

Experts' forecasts may be in line with or contrary to investors' expectations. They do not usually have a direct impact on capital markets, but market sentiment can be affected when "experts" represent national authorities - either political or monetary authorities. When monetary authorities make statements regarding the economy as a whole, they may give signals of future speeches or hints regarding the future of monetary policy. This, in turn, can affect the supply of money and interest rates (the latter being the most interesting factor for foreign investors). Please seek advice from an independent financial advisor if you are in doubt about the specification of market instruments and mechanisms.