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£'s Affect On Markets : Great Example


Sledgehead
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It's worth taking a look today at the performance of the FTSE wrt the major US indices: the Dow and the S&P500

The oil price dipped heavily during yesterday's US session (bigger than expected reserves). With what this means for th epockets of millions of Americans and American businesses, the US indidices put in a really good session. Both the Dow and S&P500 notched up >1.5% gains, and the Nasdaq managed nearly 2%.

All things being equal, better off Americans / American businesses implies better off UK business (we do a lot of exporting to the US).

However also during yesterday's session and earlt this a.m. the £ pushed up against the dollar. This might make you richer as a tourist but it also makes our exports more expensive and therefore less competitive. This is bad for UK business.

Consequently this am we find that the FTSE 100 is flat, despite the gain on Wall St.

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It's worth taking a look today at the performance of the FTSE wrt the major US indices: the Dow and the S&P500

The oil price dipped heavily during yesterday's US session (bigger than expected reserves). With what this means for th epockets of millions of Americans and American businesses, the US indidices put in a really good session. Both the Dow and S&P500 notched up >1.5% gains, and the Nasdaq managed nearly 2%.

All things being equal, better off Americans / American businesses implies better off UK business (we do a lot of exporting to the US).

However also during yesterday's session and earlt this a.m. the £ pushed up against the dollar. This might make you richer as a tourist but it also makes our exports more expensive and therefore less competitive. This is bad for UK business.

Consequently this am we find that the FTSE 100 is flat, despite the gain on Wall St.

Nice explaination, Sledgey.

Further application of this logic suggests that iwhile the DJIA looks so over-valued on the face of it, if you take into account their weak $ and low interest rates, it's probably not as over-valued as it appears.

It's all a balancing act, though. The oil price has eased back and the markets have reacted well to this (apart from the oil sector & gas sector!). When one thing rises, something else always goes down...

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Nice explaination, Sledgey.

Thanks. It wasn't really supposed to be an explanation. I hate it when people try to explain market movements, so I apologize to anyone who took offense. It was more just a little nudge to those unfamiliar with how different markets are interconnected.

The valuation argument has two strands: profits and ROI (return on Investment)

Profitwise, a weak dollar will mean companies in the US should do better as sales will increase. that means that earnings projections may prove on th econservative side. Using a measure like PER, that would mean stocks get better value as the dollar falls.

An an ROI basis, the argument is contrary. Dividends on US stocks will be paid in $, so a fall in the dollar will mean an effective fall in ROI for foreign investors. But that won't worry US investors who will merely see either higher or better covered dividends from dollar depressed profits.

When one thing rises, something else always goes down...

In general, 99% of the time, you are absolutely right. Ever thought about the 1%?

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