Will World Markets Hurt the Dow Tomorrow?

U.S. investors are taking a much-deserved break, with trading in U.S. financial markets closed for the Memorial Day holiday. But elsewhere around the world, markets made some big moves that could have an impact on the Dow Jones Industrials (DJINDICES: ^DJI  ) and other U.S. stocks when markets reopen tomorrow.

In Japan, the Nikkei (NIKKEIINDICES: ^NI225  ) fell another 3% on Monday, as the U.S. dollar dropped below the 101 yen mark in a minor reversal to a move that has seen the dollar soar by more than 30% against the yen since last September. Japan finds having to walk a fine line between seeking to stimulate its long-flagging economy while avoiding a massive disruption in its bond markets, and lately, a rapid rise in government bond rates has raised concerns about the island nation's ability to service debt that amounts to more than twice the nation's gross domestic product.

Meanwhile, in Europe, stocks traded generally higher, and although the U.K. market was also on holiday, shares in France and Germany both rose. Investors were pleased by the fact that bond yields in Spain and Italy, two of the more vulnerable major economies in the eurozone, settled back down Monday after having risen last week in light of the overall uncertainty in the global economy.

What it means for the Dow
Japan's drop recently has come on the heels of slowing economic growth in China, which remains a lucrative potential market that could help the Japanese economy bolster its own growth. The declines that U.S. investors have seen in Caterpillar (NYSE: CAT  ) and Alcoa (NYSE: AA  ) lately are just one symptom of the downturn in China, but they demonstrate the challenges that Japanese manufacturing stocks face in taking maximum advantage of the emerging-market opportunity there.

So far, consumer-facing stocks have seen only limited impact from the Chinese growth slowdown. McDonald's (NYSE: MCD  ) and other fast-food companies have suffered from the avian-flu outbreak and its consequent impact on restaurant volume, especially at chains that sell a substantial amount of chicken-based products. If the Chinese economy falters enough to threaten the rise of the nation's luxury and middle-class consumers, however, then a much wider range of U.S. and other foreign companies could start to see more direct effects. That in turn could pose a much larger direct threat to the Dow and U.S. stocks in general.

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