U.S. stocks continue their slide, capping the worst May for the Dow Jones Industrial Average (DJIA) since 1940, while the Euro continues its slump and Treasuries rose as a downgrade of Spain’s sovereign debt rating and escalating tensions on the Korean peninsula triggered a flight from riskier assets throughout most Global Markets.
The Dow tumbled 122.36 points, or 1.2%, to 10,136.63 at the close on Friday before the long holiday weekend, losing 7.9% in the month of May. The S&P500 Index, the broad measure of the Market, sank 1.2% to 1,089.41, led by financial shares on the Spain downgrade. Energy companies also helped lead the way down after President Obama extended a moratorium on new deep-water drilling off U.S. shores. Oil erased gains after rallying as much as 1.6% to more than $75 per barrel. Ten-year Treasury yields decreased 7 basis points to 3.3%. The Euro slipped 0.7 % to $1.2273.
Equities and commodities extended losses after Fitch Ratings stripped Spain of the AAA rating it’s held since 2003, saying the nation’s economic growth will slow as it attempts to cut its debts. Earlier losses followed disappointing U.S. economic data and a North Korean general’s warning of “all-out war” if any accidental clashes with South Korea break out.
“Spain’s downgrade just adds to more uncertainty,” said Quincy Krosby, chief market strategist for Newark, New Jersey- based Prudential Financial Inc., which oversees about $667 billion. “There are too many geopolitical events [creating too much uncertainty and political risk], and traders will definitely want to lighten their books.” (Read updates from Bloomberg here.) And this brings me to my larger point…
The increasing complexity of the global political economy – especially its financial, international trade, and intertwined global markets – are themes, and real issues, too little explored and too little theorized in international relations and foreign affairs circles. Dominated primarily by foreign policy, security issues, the late politics of the cold war, and now the war on terror, most policy makers and political economists tend to concern themselves with the the centrality of the state as primary actor.
However, as I mentioned recently in one of my posts, no less than the U.S. Chairman of the Joint Chiefs of Staff – the highest ranking U.S. military officer and advisor to the President – challenges the conventional wisdom and looks at the central role the economic prosperity of our nation, and the financial integrity of our markets and economy plays in our national security, and of the global economy. As I try to point out in this post, the complexity, the interaction and interdependence of states — ergo sovereign risks — global markets, international trade and commerce actors are intractably linked. Conflagrations in the Korean peninsula have real, sometimes severe, repercussions in U.S. stock markets, as well as on the performance of the Euro, etc.
The rubric through which we examine and analyze financial markets, international trade, and the global political economy has changed. Political considerations can no longer be separated from the markets and the economy. These issues can no longer be analyzed in a vacuum or in isolation. Rather, they must be examine in a larger, more complex and global context.
Source: Bloomberg.com
