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Basic Premise : All markets are related
What happens in one market has an effect on
another.
Four interrelated markets:
Commodity
Currency
Bond
Stock Markets
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Rising interest rates are bad for stock markets and
vice versa
Interest rates are affected by direction of commodity
prices.
Higher commodity prices puts pressure on inflation
which puts upward pressure on interest rates
Commodity prices and interest rates are influenced
by the direction of a country’s currency
A falling currency usually gives a boost to commodity
prices quoted in that currency. This boost in
commodity prices reawakens inflation fears and puts
pressure on central bankers to raise interest rates,
which has a negative impact on the stock market. Not
all stocks, however, are affected equally.
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1987, 1990 and 1994 – fall of world stock
markets at same times
Hyperinflation in 1970’s was global
Disinflationary trends in 1980s and 1990s
were worldwide
2007-2008 crisis very much global and
visible
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Most of the time sectorial stocks leads
commodities prices hence giving important
reversal signals