Market Watch Essay Example | Topics and Well Written Essays - 2500 words

Market Watch - Essay Example When we say that markets are not isolated, this is tantamount in saying that studying the economy of one country alone, say the United States being the most powerful country in the world, is enough to predict the international economic and financial gush. Stock traders have to be keen over the fluctuations in the bond market and bond traders in return must also pay attention to the oscillations of the commodity markets. However, in trading stocks and bonds as well as with the Foreign Exchange market (FOREX) it is not compulsory to thoroughly understand the various relationship that exists, all that is required that knowledge on specific trends, flows and oscillations are demonstrated and their cunning applications to trade decisions. Figure 1 shows the relationship between the four markets sectors, the currency (i.e. USD), the commodity market, the bonds, and stocks. As observed in the figure below, USD had a bearish influence on commodity market, the weak commodity market suggest a raise in the bond market and this raise in bonds in turn influences stocks trend. In order to realize the economic premise the ties commodities, currencies, bonds and stocks, it is necessary to underpin knowledge of the international business cycles and what happens to an economy during expansions and recessions. In most countries particularly in the United States of America, the bond is dubbed as an excellent indicator of the economy. A rising bond trend is an indicator that the economy is gaining momentum and strength; while a weaker bond market means that there is a possibility for economic backlash. During this period, the stock market in turn profits from the fluctuations of the bond market, hence traders bonds along with the stock market and vice versa. Bonds and stocks are common indicators of the health of the economy, for they turn down prior to a recession and bottom out if