The FTSE 100 and Dow Jones dropped heavily yesterday (Friday) due to the uncertainty bought about by US economic growth and it's debt ceiling, and Spain and Italy's unmanageable public finances. There are fears that Italy and Spain may need bailouts as well, which is why investors sold these stocks. Spain has the fourth largest economy in the EU, however its bond yields (interest rates on government bonds) remain high at 6.4% and in Italy, 6.3%. Greece, Ireland and Portugal had levels of above 7% when they desperately seeked bailouts by the IMF and European Union, highlighting the risk that Italy and Spain face. Have a look at this video to learn more.
The FTSE 100 fell by almost 3.5%, it's lowest fall since the collapse of Lehman Brothers in September 2008. The Dow Jones fell by 4.3%, Japan's Nikkei fell by 3.7% and Hong Kong's Hang Seng fell by 5%.
Only time will tell what will happen, how investors react to markets will influence economies in the way they want because speculation is a powerful tool. If things continue the way they are, the EU may have to start preparing more bailout packages. As for the USA, someone once told me that when America sneezes, the whole world catches a cold.
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