U.S. stock markets are closed to observe Presidents Day, but the rest of the world isn't on vacation. European stocks fell on worries that Italian elections would lead to an unclear winner, as Italy attempts to rein in debt that may eventually doom the euro. The Dow Jones Industrial Average (DJINDICES: ^DJI ) and S&P 500 (SNPINDEX: ^GSPC ) can react violently higher or lower when the euro is threatened, so the Feb. 24-25 election will be closely watched here in the United States.
Another factor driving Europe's stocks lower is the decline in the yen today. The G-20 didn't punish Japan for devaluing its yen, so the currency continues to fall, making other countries less competitive. Japan is doing this because its economy is struggling versus lower-cost nations in Asia. A weaker currency means your goods appear cheaper in other countries, making you more competitive.
The impact of currency fluctuations to U.S. stocks isn't trivial. DuPont's (NYSE: DD ) stock was crushed in October after third-quarter sales fell 10%. But 4% of that drop was due to currency fluctuations, so currency made matters look worse than they actually were. 3M (NYSE: MMM ) was hit a few days later, after sales fell 0.4% in the third quarter. But a closer look shows 2.2% growth if we take out the effect of currency changes. Ironically, a weak dollar is good for U.S. companies and U.S. stocks, which is the opposite of what we're seeing lately.
Also making news today is oil. West Texas Intermediate oil fell for the second straight day, and Saudi Arabia's crude oil shipments hit a 15-month low in December. The slight decline in oil is a little reprieve for consumers who have been dealing with higher costs at the pump. Gas prices have risen for 32 straight days, and we haven't even gotten close to the summer travel season. With higher payroll taxes hitting the middle class and now higher oil prices, there will be pressure on consumer spending, which is still the biggest driver of the economy.