Commodities are a good starting place given that they are often regarded as being at the start of the chain as they're the most tangible of all assets.
If we talk through an example, it may be the best way to describe the chain of events. Say we had rising commodity prices to begin with, this would in turn lead to more expensive food, manufactured goods etc. thus causing an inflationary effect (i.e. rising prices). With a higher inflation, people will hold less bonds because the value of the future repayments will be less than it was before, causing bond prices to fall. As bond prices have an inverse relationship to bond yields, yields will increase with this fall in order to entice investors back into the money market, resulting in higher interest rates.
Higher interest rates meaning higher borrowing costs for individuals and companies alike, causing Equites to fall as well. Less investment which results in less growth, which feeds back down into the commodities. Thus making a full circle! Meaning that the financial markets are in equilibrium and that any external impact on the financial system will affect every market.
It starts to get a lot more interesting when you add currencies into the mix. The system that we just ran through is a good explanation of how localised markets behave but when you consider global markets, all trading at different rates, it becomes a lot more complicated.
Currencies affect every market, but probably the most directly and obviously affected by changing exchange rates are commodities. Global trade and shipping is affected by global currencies so dramatically that one day it might make sense to export, then next import all from the currency movement alone.
Again we will walk through a scenario to demonstrate the process, and as the majority of global commodities are USD denominated we'll look at them first.
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