Malaise In U.S. Spreads To ETFs In Europe, Asia

The U.S. economy isn’t just affecting every corner of our own country, from our entire financial system, our jobs and our exchange traded funds (ETFs), but other areas of the world are hurting, too.

The European Commission has demanded that the United States take responsibility for its crisis and its failure to pass a $700 billion bailout, report Adam Sage, Rory Watson and Richard Owen for the Times Online. A spokesman said that the global economic crisis originated in the United States and that it’s our responsibility to get the ball rolling and fix it.

The commission is going to draft pan-European legislation to increase capital requirements for banks.

New numbers suggest that Europe could be in for a recession soon, leading to a sell-off that has sent the euro lower, reports Carter Dougherty for the New York Times. A number of the continent’s countries are pulling together money to rescue their own banks, and some banks themselves have been gathering money to rescue other entities, such as a commercial property lender in Germany.

Asia gained today and opened the fourth quarter on a high note, rallying a day after sharp losses. Banking shares led the way, but investors stayed cautious, reports Chris Oliver for MarketWatch. Markets in Australia and New Zealand were the strongest. Taiwan delivered modest gains, and Tokyo’s Nikkei 225 ended on a mostly high note. South Korea’s benchmark ended in negative territory.

• iShares S&P Europe 350 Index (IEV), down 28.5% year-to-date
• iShares MSCI EAFE Index (EFA), down 28.4% year-to-date

The euro is coming down off its high against the U.S. dollar and Japanese yen, after speculation on government banks intervening throughout Europe, causing ETFs to move.

The euro traded at a near-two-week low against the dollar after France and Belgium were experiencing a state-backed rescue of Dexia SA. European Central Bank President Jean-Claude Trichet declared a pan-European solution to the financial crisis wasn’t likely, reports Stanley White and Daniel Kruger for Bloomberg.

Meanwhile, the U.S. dollar rallied from its biggest decline against the yen in one week after the speculation of the U.S. senate will salvage a $700 billion bank-bailout plan as early as today after the House rejected it on Sept. 29. The European Union will not propose a bail out plan because Europe is not a federation with a federal budget.

The U.S. dollar is in demand from the global U.S.-dollar based system. ETFs reflecting this shift:

• PowerShares DB US Dollar Index Bullish (UUP), up 3.1% year-to-date
• CurrencyShares Euro Trust (FXE), down 1.2% year-to-date

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