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Understanding the Impact of Interest Rate Hikes on Stock Markets: Key Questions and Market Reactions

Most central banks have raised interest rates on the back of the US central bank raising the interest rate to 5.5 percent, so there are some key questions that need to be asked for more understanding about the movement of the interest rate and the movement of the markets and their impact on that.
What is the stock market’s reaction after the US interest rate hike? To answer, we have to clarify that the reaction of the markets is asymmetric. For example, the effect of the interest rate in emerging and developing economies differs from that of developed economies such as Japan, for example. However, it is repeated that emerging and developing markets are greatly affected and their risks increase whenever the economies are weak and have developmental or commercial debts. While emerging markets differ according to the size of their economy and the extent of their openness, for example, small and open economies have a rich set of shocks, and this is due to the state of friction with foreign markets, and the intensity of the shocks varies according to internal monetary policies and the nature of managing trade activities, and for this reason their shocks are mostly transient, that is Unlike developing countries that lead to economic disasters and scars that may be permanent with high interest rates.
As for the advanced economies that encourage many strong monetary incentives, the level of shocks differs according to the group, for example the European economies that are economically intertwined with intensity such as France and Britain, where unemployment levels rise rapidly, while America is less affected, in contrast to that Japan has different policies and economic features and characteristics. An individual that makes unemployment and inflation under control, and for this reason the Japanese markets are more stable than the American or European markets. Theoretically, through the unemployment rate in the financial crises of those countries. Japan is mostly the lowest and at the same time inflation is less, because the movement of money and the quality of monetary management tend to the quality of monetary policies in Japan, so we can observe the financial shocks in the financial markets and conclude and foresee the repercussions of the movement of raising the interest rate on the dollar, and despite all of the above Markets remain subject to an unexpected movement that may resemble the movement of fluids in physics due to many variable factors such as the economic system, the extent of development of financial markets, the size of cross-shoe companies, economic diversification, trade movements and the current account of each country, in addition to the quality of economic management and the extent of government intervention in protecting their markets and companies from Effects of interest rate and cost shocks, if there is an economic exposure to the state, i.e. it depends on another country that contradicts its economic interests.
Finally, to understand the markets’ thinking with the interest rate on us as companies or individuals, realize that the economic shocks after 2020 are nothing but the shocks of major central banks, and governments have no choice but to increase the dynamism of their companies and the safety of internal consumption until the storms pass.

2023-07-28 21:03:28
#markets #interest #rates

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