The Impact of International Events On Financial Markets

shley Page, Senior Vice President, investment firm, Birmingham, AL07/23/24: Let’s take a “look ahead” at a few items that we will be tracking carefully during the week. These are just a few opinions that we have, and as with life, nothing is certain about them.

  1. The “Week-At-A-Glance”:
  2. Beginning today, the Federal Reserve Bank of Chicago releases its index of national economic activity for June. Tuesday has a strong international focus, as Spain holds a debt auction and representatives of international creditors are expected to arrive in Greece. On Wednesday, Treasury Secretary Geithner begins two days of testimony on Capitol Hill and a report on June sales of new homes is due from the government. Thursday has more domestic data, as the U.S. posts metrics on durable goods orders for June and initial claims for unemployment benefits for the latest week are released. The market week ends Friday with The Commerce Department releasing its initial estimate of second quarter domestic product and The University of Michigan providing data on consumer sentiment for July.

    What does this mean for investors?

    The situation in Spain is already “batting lead- off” in a big way today and will be a major focus this week. The country is continuing to suffer contraction as the economy gets dragged down by on-going massive budget cuts. Increased market volatility caused by political forces, both in Europe and in the United States, is certainly the “new normal” these days.

    Financial Market Outlook

  3. And just when you think international events can’t get any more impactful on financial markets, here comes Iran.
  4. A series of recent incidents have brought Iran back into the market’s focus. U.S. oil futures have spiked 18% over the past three weeks over worries that the Iranians will attempt to close the Strait of Hormuz if threatened. Over the past three weeks, smaller price rises have followed reports of additional U.S. warships being sent to the Gulf and the imposition of additional sanctions.

    What does this mean for investors?

    Simply put, more uncertainty on top of what has been an already heightened sense of nervousness among investors. International news that has market implications here at home seems to be coming in waves, and what is particularly disturbing is how wide ranging geographically (and varied) it is.

  5. In an interesting twist, many small and medium sized companies are not taking tax breaks that they are entitled to because they are just too complex and costly to fool with.
  6. For years, politicians have used targeted tax breaks to try to influence corporate behavior. The assumption has been that companies will always take advantage of them to hire additional workers, add equipment and improve efficiency. However, executives at small and medium-sized companies (where the vast majority of new American jobs are created) are now complaining that the tax deductions are just too cumbersome or too confusing. In some cases, the cost of obtaining the tax benefit is actually greater than the benefit itself! Unfortunately, some of these breaks that Washington hopes will help boost the economy are proving ineffective.

    What does this mean for investors?

    When it comes to government trying to “help” business, just because things in the “conception” stage sound good does not mean that the “execution” stage will work. In our view, what the government needs to do is to “step back” and let the genius of the American entrepreneurial spirit operate as unimpeded as possible. Corporate management, not government, is best positioned to allocate resources in order to generate risk-based returns.

  7. The proposed creation of a single euro-zone bank supervisor will be an interesting test of whether European countries are willing to give up national powers for the sake of the euro’s survival.
  8. Many government and central bank officials say that for the euro zone to solve its crisis, debt-ridden countries in Southern Europe must give up national sovereignty in fiscal policy and banking supervision to euro zone authorities in exchange for financial aid from wealthier countries. Negotiations over taxpayer-backed bailouts of other countries, and imposing austerity policies in exchange for financial help, are increasingly controversial across Europe. Some analysts say creating a single bank supervisory arm of the ECB should be more achievable than some other ambitious proposals to shore up the euro zone, such as collective debt issuance by governments.

    What does this mean for investors?

    Lessening the volatility impact on markets emanating from Europe is going to be a long, long road. Each country seems to have a unique execution problem that is different from the others, not to mention the legal and constitutional challenges at the “country level” that will emerge. Simply put, while Europe may have the “will” to solve the problem, they simply do not have the centralized powers to do so at the moment. The key question is whether they ever will.

I’d love to talk with you about your investments in relation to this blog or other matters. Feel free to call me at (205) 989-3498 or email me here.

Ashley Page
Senior Vice President
Wealth Consultant

Fi Plan Partners is an independent financial planning firm in Birmingham, AL that specializes in financial planning, wealth management and business consulting.


The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.

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