You cannot even open a financial newspaper these days without hearing about the withdrawal of the US stimulus package and what it means for emerging markets. This is why the Academy of Financial Trading wants to clear up just why the US stimulus is a big deal for online trading.
The US Stimulus Scheme is a monthly bond buying programme set in place by the US Federal Reserve; the US’ key organisation when it comes to national financial policy. The scheme was put in place in the wake of the 2008 global financial crisis, which hit the US particularly hard. It was designed to shore up their flailing economy.
However the US wasn’t the only country affected positively by the scheme. The nature of government bond buying, which is where governments borrow money from investors for projects and activities it needs to finance, meant that emerging economies were boosted to. This was because the scheme facilitated a greater flow of cash to said economies.
However we are not living in 2009 anymore. Last year saw several signs that indicate that the US economy is in recovery, US job creation was stronger than it’s been in a while, their housing market had finally started growing again etc.
This news prompted speculation that the stimulus would be withdrawn; after all what’s the point of borrowing money to fund government projects when you don’t need it? This had a very real effect on developing markets. Prices plummeted and currencies in countries such as Mexico, Brazil and India were all affected. This was only because of speculation and expectation.
Now the stimulus package has been somewhat withdrawn; the US has reduced the amount that it spends on bond buying on a monthly basis. Despite the gentle tapering back of the scheme, it will have a knock on effect on emerging markets and you need to know about it if you’re ever dealing with one of these markets.
It’s such a big deal because it affects how much money is coming into and going out of these countries. If there’s less money flowing means less to invest and less to spend. Less money means less growth, less opportunity. What you need to take away from this is that the withdrawal of the stimulus is something you need to know about if you hope to be successful at the moment in financial trading.
LINK TO INFO: http://www.investopedia.com/terms/b/bond.asp