The movements in the commodity markets have effects on the price trends in other financial markets and market sectors like bonds and stocks. On the other hand, commodity markets themselves are largely unaffected by the movements in other markets.
The reason is quite obvious: commodities are hugely used for consumption purposes. In addition, they are necessities. Thus, if their prices increase, a larger portion of the budget spent on them leaving little wiggle room for other items.
In this article, we will describe how the movements in essential commodities like energy, food, and metals affect movements in other financial markets Brokerage Definition.
The real estate is a huge sector in any country. It is also among the largest employer. Therefore, sluggishness in the real estate is bound to have some ripple effects. On the other hand, real estate uses a lot of commodities as inputs.
Even if we don’t include the basic raw material like land, there are still a lot of other commodities like iron and steel, wood, and other metals that are extensively used in this sector.
Therefore, if the prices of commodities soar, an instant effect can be witnessed in the prices of real estate. This causes the sales to slip in bank credit creation. In addition, the wages paid to the workers also fall during this period, further emphasizing the cycle.
A fall in the real estate market will also affect these commodities because there will be lower demand. However, the intensity of this effect will not nearly be as much Top Financial Brokerage Firm.
Similar to the real estate, the automotive sector is also the backbone of any local economy. It is a heavy manufacturing industry and employs huge number of people. Additionally, just like real estate, the automotive sector uses a huge amount of commodities as inputs. The basic raw material used is metal, obviously. Those means if mining companies have a slow period and are unable to mine sufficient metal, the prices will increase. The auto industry will have no alternative but to pass on this price on the consumers.
The prices of commodities like petrol and diesel have a direct effect on the telecom sector. This is especially true in countries like India wherein electricity is not available in abundance. Most of the telecom towers in rural areas are powered by generators.
These generators utilize petrol or diesel as their fuel. Without using this fuel, the telecom sector would not be able to work properly. These rural towers provide the needed level of connectivity which enables telecom companies to assure companies regarding continued coverage.
Therefore, if the price of petrol and diesel increases, so does the cost of maintaining a telecom network. This expense imminently gets passed on the consumer and also impacts the value of those stocks in the equities market.
The price of oil also has a huge effect on the performance of the retail sector. Consider the fact that most products present in the retail store are either made from plastic or are packaged in plastic. And plastic is a by-product of oil manufacturing.
Therefore, if the prices of oil rise, so does the price of the plastic. This has an impact on the retail business and they are left with only a couple of alternatives: one is to pass on the hike to the consumer which is difficult given the competitive nature of the retail market.