The media has incredible influence over many facets of life and the financial markets are no exception.
A famous study by Huberman and Regev showed how an article in the New York Times directly caused a 600% increase in one biotech company’s stock price, despite not actually revealing any new information.
The impact of news stories is often felt worldwide and, with this in mind, a new interactive tool has been launched to help traders get an instant picture of international repercussions.
Market Health by DailyFX, the leading portal for forex trading news, provides a snapshot of global markets and indices all in one place, allowing people to quickly assess the consequences of big events.
To launch the tool, Daily FX has analysed how four major news stories from the last decade have impacted the financial markets, to help investors better understand this complicated relationship.
Brexit sent shockwaves through the markets, with virtually every British industry from manufacturing to farming experiencing volatility. This uncertainty has seen the value of the pound fluctuate dramatically, particularly when the media speculate about the future.
In August 2019, rumours of a no-deal Brexit began to circulate in the press and sterling subsequently fell to a three-year low against the dollar.
However, in December, when news broke that the Conservatives were about to secure a large majority in government, the pound rose to a year-high. Many newspapers claimed a new period of calm, with hopes that Boris Johnson’s landslide victory would finally bring some stability to the country.
Unfortunately, the Coronavirus has meant 2020 has been anything but stable. The pandemic has completely dominated the news agenda, removing Brexit from the public eye. It’s hard to say whether its absence from the news is affecting trading, as Covid-19 is now the main influence on global markets. However, previous Brexit announcements have led to big price movements, so as soon as they inevitably make headlines again, the markets will surely respond.
Peter Hanks, Analyst at DailyFX, commented: “While Brexit headlines may not dominate the front page as they used to, it is important to consider the effect of persistent uncertainty derived from the theme.
“As the EU and UK clash, regulatory guidelines remain in flux and businesses may look to delay capital expenditures as a result. Consequently, the current Brexit proceedings may not spark dramatic price swings that dominate the tabloids as they used to, but the lingering uncertainty can certainly erode price over time. Thus, it can be argued Brexit is still a very real headwind for the British Pound and FTSE 100, perhaps just not to the degree that it has been in the past.”
US and Iran oil crisis of 2019
In the autumn of 2019, Iranian officials reported that one of their oil tankers had been hit by two rockets while in Saudi Arabian waters. The explosions damaged the vessel, causing oil to leak into the Red Sea and tensions between Iran and the USA – a strategic ally of Saudi Arabia – to escalate further.
An Iranian news agency first broke the story and then NBC broadcast it to the Western world, with allegations wildly thrown around. The National Iranian Oil Company said that the cause was under investigation, however rumours were already spreading.
With the media fanning the flames, Brent crude futures – the international benchmark for oil prices – rose by 2.4% to reach over $60.50 a barrel. Part of this increase will have been due to the impact of the attacks on oil reserves, but the media storm surrounding the event suggested that the Iran-US conflict was set to intensify. This prompted traders to jump on commodities in case the hostilities continued to send prices skywards.
In 2020, the coronavirus ignited global panic as millions of people were infected, businesses closed and share prices tumbled. It was, and remains, the international health emergency of a generation and its unprecedented and universal nature means that it has wholly dominated the news agenda.
As the pandemic worsened, a worldwide search for a vaccine began and rumours of breakthroughs in the media led to movements in the stock markets. Share indexes, such as the FTSE 100, rose and fell with the emergence and then eventual discrediting of new drugs.
In April, stories began to circulate that claimed the American company Gilead had found a drug that was effective. This optimism led to surges in Asian, European and US stocks.
However, as doubts started to appear about the treatment’s reliability, the markets fell once more. The FTSE 100 dropped by 0.7% and the Stoxx 600 traded 0.3% lower.
While Gilead’s proposed remedy was ultimately unsuccessful, it does show the power of the media, as such updates directly boosted investor confidence. News of a successful medical breakthrough could well be the catalyst that sees the world’s markets start to recover.
In today’s world, most breaking news stories are first revealed on social media, with information able to be shared as soon as events occur. Traders now need to monitor content on both traditional news sites and channels like Facebook and Twitter, as sometimes a single post can create waves in the financial markets.
In 2015, the billionaire activist, Carl Icahn, tweeted that he believed Apple’s stock was undervalued. This simple post caused the tech giant’s market value to rise by more than $8 billion in just one day. Conveniently for Icahn, a major Apple shareholder, his own investment in the company increased in value by $76.5 million.
With social media clearly holding great power, it’s crucial that traders are also wary of fake news stories. When somebody hacked The Associated Press’ Twitter account and posted that President Barack Obama had been injured in an explosion at the White House, the DOW Jones dropped by over 140 points. The temporary loss of market cap in the S&P 500 alone totalled a staggering $136.5 billion. The story wasn’t true, but it shows how significantly markets can fluctuate as a result of social media.
John Kicklighter, Chief Currency Strategist at DailyFX, said: “Before a day begins, traders need to check how markets around the world have performed and how they have reacted to any latest news. A single story can send ripples across the planet, so it’s important to assess it’s full impact before making any moves on the domestic stock exchange.
“The DailyFX Market Health tool has the advantage of a clear and interactive structure, giving traders exactly the benefits they need to start a day.”
To learn more about Market Health and to view the tool, visit: https://www.dailyfx.com/research/market-status