We have started looking at the macro-economic factors that may affect the stock market. In particular, we started off by looking at the influence of inflation on a currency. This is an indicator of economic health, and thereby the health of the stock market. Something that closely follows inflation is interest rates, which we will discuss now.
Interest rates influencing currency
Interest rates will naturally rise and fall with inflation rates. People who are, say, giving out a loan, will change interest rates to match the change. This is to ensure that they get the same value from their loan and are not losing money. People will be spending less money in times of hardship, so people save more. Therefore, companies depending on consumer spending will suffer. Loaners are thus protecting themselves against such economic hardships as well. Combining all this, the prices of a stock will decrease, as investors are also more careful.
How oil influences an economy
Oil is a major part of any economy. Without it, we could not be living the life we live today. It powers cars, helps in heating homes, and has a million other applications. Therefore, whenever oil suffers, economies suffer as well. All the industries dependent on oil, a major sector of the economy, will undergo hard times. They will not be able to serve their customer base as well, and many people employed with such companies will be let go. These people themselves will end up spending less. This further damages the economies, and, thus, the stock market. Many of the stocks in exchange will have a direct link to oil themselves.
Therefore, knowing how the supply of oil is doing is an important factor for economies. If there is an embargo on a country like Iran, the oil industry may soon have trouble.