What Drives Financial Markets: Making Sense of Financial Forces, 1st edition

  • Brian Kettell

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The 1990s saw an unprecedented eruption of currency crises wreaking varying degrees of instability and chaos throughout the world's foreign exchange markets. From the withdrawal of sterling from the Exchange Rate Mechanism in 1992, through to the crash of the Asian currency markets in 1997, and on to the economic upheavals in Russia and Brazil in 1998, the last decade has produced an ever more volatile financial environment. The launch of the euro, and its subsequent implications, has added yet another dimension to what is already a turbulent and enigmatic global marketplace.

Never before has a thorough understanding of what shapes and shakes the currency markets been of such paramount importance.

What Drives Currency Markets takes the reader on a complete tour of the instigators of change within the foreign exchange market. Beginning by placing the FX market in the centre of the global financial system, it moves on to explain where volatility originates, and what the major factors of change are, including economic developments and short-term considerations. The book discusses what makes a great currency and whether currency collapses can ever be predicted. The influence of the euro is emphasized throughout the whole text and the author concludes by asking whether the euro will succeed or fail as a currency.

What Drives Currency Markets is essential reading for dealers, analysts, newcomers to the financial markets, and finance professionals across the board who need to maintain their edge at the forefront of developments in international financial markets.


About the FT Market Fundementals Series

"To say that the financial markets were subject to information overload would be a major understatement. Indeed the news and data streaming endlessly from the computer terminals carrying information appears limitless" - Brian Kettell

This new series puts readers in the ideal position to assess new market moves quickly and efficiently, interpret market indicators correctly, anticipate other players' moves while there's still time to profit, and avoid being caught out by sharp price moves in rapidly changing markets.

FT Market Fundamentals: sort the vital from the trivial and stay ahead of the game


Table of contents



1. The role of information in financial markets.

Introduction. Making sense of the data. The role of expectations in financial markets. Expected versus unexpected news. How can you follow the economy when they keep changing the numbers? Challenges to official statistics. Summary.

2. How do you value financial assets?

The time value of money. Future values: the role of compounding. Present values: the role of discounting. Bond and stock valuation. Valuation of financial assets—an overview.

3. The business cycle and financial markets.

How does the business cycle affect financial markets? Key features of the business cycle. The stages of the business cycle. The role of inventories in recessions. The business cycle and monetary policy. Fundamental analysis, the business cycle, and financial markets. The NBER and business cycles. How do you identify a recession? The American business cycle - the historical record. The Goldilocks economy. The non-accelerating inflation rate of unemployment (NAIRU). The future of the business cycle. Appendix 3.1: Diffusion indexes: a note on how to interpret them. Appendix 3.2: US business cycle surveys (selected business, investment, and consumer surveys). Appendix 3.3: The business cycle: what are its prospects?

4. The Federal Reserve at work—The implementation of monetary policy Introduction.

How do banks create money? - the principle of multiple deposit creation. Bank deposits—how they expand or contract. The instruments of monetary policy. Appendix 4.1: The reserve multiplier—why it varies.

5. How does economic activity affect financial markets?

What is macroeconomics all about? Financial markets and the economy. Appendix 5.1: A primer on short-term linkages between key economic data series.

6. A survey of market-sensitive economic indicators.

Introduction. Gross National Product and Gross Domestic Product. GDP Deflator. Producer Price Index (PPI). Index of Industrial Production. Capacity utilization rate. Commodity prices—general. Commodity prices—crude oil. Commodity prices—food. Commodity price indicators—a checklist. Consumer Price Index (CPI). Average hourly earnings. Employment Cost Index (ECI). Index of Leading Indicators (LEI). Vendor deliveries index. Appendix 6.1: Computation of price indexes. Appendix 6.2: Macroeconomic announcements.

7. Consumer expenditure.

Introduction. Auto sales. The employment report. Quit rate. Retail sales. Personal income and consumer expenditure. Consumer installment credit.

8. Investment spending, government spending and foreign trade.

Introduction. Residential fixed investment—housing starts and permits Residential fixed investment—construction spending Residential fixed investment—new home sales. Non-residential fixed investment—advance durable goods orders: manufacturers' shipments, inventories and orders release. Non-residential fixed investment—construction spending. Inventory investment—manufacturing inventories, business inventories and sales. Government spending. Budget deficits and financial markets. Foreign trade—net exports, trade and current accounts.

9. The effect of consumer confidence and consumer sentiment on financial markets.

Introduction. National Association of Purchasing Managers Index (NAPM) Business Outlook Survey of the Philadelphia Federal Reserve Help-Wanted Advertising Index. Sindlinger Household Liquidity Index.

Addresses and web sites.


Published by FT Press (July 26th 1999) - Copyright © 1999