{"id":16163,"date":"2010-12-02T13:00:27","date_gmt":"2010-12-02T18:00:27","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=16163"},"modified":"2010-12-02T13:00:27","modified_gmt":"2010-12-02T18:00:27","slug":"why-international-markets-affect-the-u-s-market","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2010\/12\/02\/why-international-markets-affect-the-u-s-market\/","title":{"rendered":"Why International Markets Affect the U.S. Market"},"content":{"rendered":"

By Sara Nunnally, Editor, Smart Investing Daily, TaipanPublishingGroup.com<\/strong><\/span><\/a><\/p>\n

On Sunday, European ministers agreed to an 85 billion euro bailout of the Irish economy<\/a>. This long-anticipated move had mixed results that rippled through the global economy — even here in U.S. markets.<\/p>\n

Why would an Irish bailout affect the markets here in the States? (And drastically at that!) By midday on Monday, the Dow Jones Industrial Average dipped more than 130 points, trading below 11,000 — a level that has been repeatedly tested over the past two weeks.<\/p>\n

Take a look at this chart:<\/p>\n

\"Dow
\nView larger chart<\/a><\/p>\n

This is the third time since Nov. 15, and we’re seeing the Dow struggle to break 11,200.<\/p>\n

No doubt the U.S. economy has its own troubles, but what is it about the European bailouts that affects the U.S.economy so much?<\/p>\n

In a backward sort of logic, here’s one reason. The European bailouts push the value of the euro lower, which in turn makes the U.S. dollar appear more valuable — and investors flock to the safety of the U.S. dollar, making the greenback even more expensive. This makes U.S. markets fall.<\/p>\n

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The announcement of the Irish bailout sent the euro down 0.8%<\/a> in morning trading on Monday. It was trading for $1.3136 — its lowest level since Sept. 21.<\/p>\n

U.S. and European markets fell in response. Indeed, the only group of stocks that appeared to like the bailout news was the Irish banks on the receiving end of the cash. But Ireland isn’t the only country with debt problems<\/a> causing concern in global markets.<\/p>\n

Spain and Portugal are still struggling… and they could be next in line for a bailout. These countries’ bond yields are sky high, reflecting the risk associated with the countries’ chance of default.<\/p>\n

And here’s the scary part… There may not be enough funds to bail out Spain.<\/p>\n

That’s the other part of the scenario. A lower euro means a higher dollar, and a defaulting country could mean a domino effect that ripples through the entire European Union.<\/p>\n

We saw the same fears with the Greece crisis back in late spring this year, though fears were probably worse then.<\/p>\n

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy and I simplify the stock market for you with our easy-to-understand investment articles<\/a>.)<\/em><\/p>\n

Between May and July, the Dow fell from 11,151 to 9,686, before rebounding. I don’t think we’ll see anything like that massive drop, unless Portugal and Spain do continue to tremble under the weight of their sovereign debt.<\/p>\n

For now, these fears are trumping even the outstanding Black Friday sales<\/a>. Preliminary reports show a 14% increase in online spending from Thanksgiving through Saturday, and the National Retail Federation said that 212 million people visited stores and websites — up from 195 million last year.<\/p>\n

That means investors will have to get creative with their portfolios. Looking outside the euro-U.S. investment scene, we find the only markets up on Monday were Asian markets and Israel (though only slightly).<\/p>\n

The Hang Seng was up 1.26% as of midday on Monday, and BSE 30 (Bombay’s main index) was up 1.40%. Australia, Japan, Taiwan and Malaysia were all up nominally, while Shanghai, Indonesia and South Korea were all off less than half a percent.<\/p>\n

This is pretty interesting, considering the military scare between North and South Korea last week.<\/p>\n

South Korea’s Kospi Composite Index hasn’t quite broken down out of its six-month uptrend, either, though it’s precariously hanging on…<\/p>\n

It would be simple to say just follow the U.S. dollar , but that’s not a complete picture.<\/p>\n

I spoke about some key characteristics to look for in any international market<\/a> back in mid-October.<\/p>\n

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In a nutshell, international markets have to have a well-developed financial system, one that’s dynamic enough and diverse enough to handle a global economy. International m arkets should also have significant cash reserves. Just look at Ireland and Greece, which needed bailouts. They don’t have any ready cash for crises of this nature and need to go begging.<\/p>\n

The contagion could spread to other nations, like Spain and Portugal, so if you’re looking at international markets as a way to diversify your portfolio, keep these characteristics in mind.<\/p>\n

That’s not to say these bumps in international markets aren’t actionable. Traders will be having a field day with these market dips and economic fears.<\/p>\n

The BBC reports:<\/p>\n

Germany<\/em>‘s finance minister Wolfgang Schaeuble attacked market speculation over the financial woes of Portugal as “irrational”.<\/em><\/p>\n

At the same time he praised the rescue deal for the Irish Republic.<\/em><\/p>\n

“The speculation on the international financial markets can barely be explained rationally,” he told German radio station Deutschlandfunk.<\/em><\/p>\n

Countries are put under pressure leading to “fear effects,” he said, adding “the markets can make a lot of money in this way.”<\/em><\/p>\n

Certainly, international markets — if played correctly — can offer a lot of opportunities for investors, too.<\/p>\n

About the Author<\/strong><\/em><\/p>\n

Sara is Co-Editor of Smart Investing Daily<\/a><\/em>. <\/em>As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, <\/em>and CNBC’s Squawk Box,<\/em> as well as numerous radio shows around the country.<\/p>\n

As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.<\/p>\n","protected":false},"excerpt":{"rendered":"

Why would an Irish bailout affect the markets here in the States? (And drastically at that!) By midday on Monday, the Dow Jones Industrial Average dipped more than 130 points, trading below 11,000<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-16163","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/16163","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=16163"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/16163\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=16163"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=16163"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=16163"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}