Basic Premise : All markets are related What happens in one market has an effect

on another.

Four interrelated markets: Commodity Currency Bond Stock Markets

Intermarket Analysis

• 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.

Few important intermarket relationships

• 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

Intermarket relationships are GLOBAL

• Most of the time sectorial stocks leads commodities prices hence giving important reversal signals

Relationship between sectorial stocks & commodities

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