What Drives Financial Markets?

When analysts, dealers and investors are subject to information overload, how can they realistically isolate and interpret the relevant market signals needed to build a coherent financial strategy?

Given the reality of increased market volatility it is increasingly important to understand which are the most influential economic and psychological indicators and how, in turn, they impact on the prices of financial assets.

What Drives Financial Markets contains an accessible set of rules by which financial analysts, dealers and investors can observe and respond to new economic indicators. This book illustrates the interaction between fiscal, psychological, political and economic factors that drives financial markets, highlighting the key role of market sentiment. Emphasis is placed on interpreting relevant signals in order to be ale to act swiftly and profitably.

The book defines the four criteria on which to judge the value of an indicator: relevance, timely release, availability and stability. It also gives clear analysis of how the business cycle affects financial markets, as well as discussing the influence exerted by such institutions as the US Federal Reserve. Readers will understand and analyze the driving forces and impact of economic changes, identify long-term trends as opposed to short term volatility, and make appropriate investment decisions.

• Introduction

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 value: 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?
• Introduction
• 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 prices 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 order 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

Describes in an easy way what drives the market forces. Read it.