Market relationship between bonds prices, equities, currencies and commodities.

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All the four markets above work together. Some move in tandem with each other and some against.  There is a market cycle in all of them as we all know, what goes up must come down.

When bond prices fall, interest rates will rise. Interest rates are caused by the fluctuation of prices in cost of goods. As commodity prices go up, so will the cost of goods and this leads to inflation and interest rates rises to reflect that inflation.

At the same time when bond price falls, stocks will eventually follow suit and fall. Due to the rise interest rates, borrowing becomes expensive and cost of doing business increases. The lack of business will certainly affect the company profit prospects and thus the decline in stock prices and stock market. This relationship however is different when we go through a deflationary period. In 1997 we saw stocks fell as bonds rose, and stocks rose as bonds fell. Deflation will generally push stock market lower. Bond price will move higher to reflect falling interest rates.

Currencies are moved by many factors like economic growth, interest rates, politics and so on. Since economic growth and exports are directly related to a country’s domestic industry, this in turn related directly with the stocks.

In a nutshell:

Commodities rise, cost of goods is pushed up.

Price will rise due to inflation and interest rates rise to reflect inflation.

Bond price will fall as interest rates rise.

When bond price fall, stock will follow suit and fall as borrowing cost rises due to inflation.

U.S. Dollar and commodity prices generally trend in opposite direction. As the dollar declines relative to other currencies, the reaction can be seen in commodity prices (which are based in U.S. dollars).