Four sectors of the financial market


Part 1. Goods market and the bond market

In the financial market can be divided into four main sectors of stocks, bonds, commodities and currencies. Novice traders specialize, usually on one particular market. That is understandable beginner does not work with all the tools and try to understand the secrets of stock trading on any one currency pair or in stocks, or, for example, the futures for soybeans.

In one format

Trader tries to study the market by all means. This helps him technical and fundamental analysis. And as you gain experience, when he is on the memory can draw any chart, the market is becoming increasingly clear the trader, "mother." This, of course, has its advantages, but it was such an experience to be in his way in the future to explore other markets. New market trader seems too confusing compared to the "native."

On the one hand, the study of other markets takes time and energy, which are so necessary for success in trading. But on the other - at some point the trader begins to realize that "his" market impact other markets and that they are all interrelated.

To understand the "non-native" markets, need to call on the help of technical analysis. After all, the fundamental structure of the market is very different, and technical analysis allows us to compare data from different sectors, so to speak, in the same format. Based on that book by Murphy "Intermarket Technical Analysis" [1]. Using the principles embodied in it, try to determine the current stage of the economic cycle, and to assess the current status and the expected dynamics of the four sectors of the financial market.

Speaking about the economic cycle, we will examine the U.S. economy, which is due to two main reasons. First, an imbalance that is that most of the consumption is concentrated in the U.S., and therefore the economic difficulties in the United States have a huge impact on the world economy. Second, the U.S. dollar is still the currency of the world, the euro is still not a leader and, most likely, it will not happen tomorrow.

Inflation and interest rates

The main indicator of the economy could be called two closely related parameters - inflation and accounts (interest) rates. All sectors of the financial market (commodities, bonds, stocks, currencies), "twisted" around these parameters. Inflation is a key link between the commodity market and the bond market. That is, rising commodity prices is a sign of the presence of inflation. Periods of inflation are also accompanied by an increase in interest rates and inflation are characterized by the absence of periods of decline. The main feature of the relationship between commodity prices and bonds is that commodity markets are moving in the same direction with a yield bonds and thus the opposite to bond prices. [1] In the following text we will use one indicator - bond price, and the term "Bonds" shall mean the price. With economic recovery will require more resources and money. This causes a rise in the cost of goods and increase the price of money itself (an increase in bond yields and drop their prices). With the increase of commodity prices rising inflationary expectations, forcing the authorities engaged in monetary policy to raise interest rates to curb inflation.