How much are the world markets dependent on US Economy?

Lets take the example of the Asian markets and how they are trading since the start of this year 2008. Jan 2008 has not been a very good start with most of the markets loosing a lot of ground. The markets as of today have dropped close to 20% lesser than what they were in Dec 2007.

All this was because the fear of US heading towards a recession. Uncle Sam heading to recession has so much of impacts all over the world. Its a cyclic reaction. Uncle Sam heads to a recession; the companies start spending less and the americans start spending less. The usual routine is the whole world saves for the Americans to spend.

Only when the US companies spend much on their services, Indian IT grows. Only when the Americans spend; the Chinese market grows coz export grows. Globalization in the recent past has led to a lot of cyclic reactions. The markets in the US catch cold, the Asian Markets cough.

Indian and Chinese markets called as the Emerging markets are supposed to be very good for investement. Now, once Globalization has started, a person sitting in India/London/NY can trade in the emerging markets in the morning (of IST), and then shift gears in the European market and then; have his dinner (investment) in the US market. Now you see how one market can affect/effect the other market.

On 22nd Jan, the Indian benchmark hit the circuit in the first few mins of the trading session, only to recover from that later. However in the pursuit, it had almost hit another circuit before the blue chip stocks pulled it up. Later on, by close it did recover. There were many reasons why the sensex fell, FIIs liquidifying so much to the extent because they had to fund their mother companies. Large caps saw such a down fall that a retail investor could buy them that day and sit on them for a long term.

The US which was on a holiday for Martin Luther King day, was astonished to see this happen on Monday. The fed held a phone conference only to decide to slam the interest rates by 75 points; which was announced after the Asian markets closed at around 0700 hrs EST on Tuesday. NASDAQ reacted a little positive, though not into the greeen area, the announcement for sure made sure that the DOW did not fall further.

The next day, the Asian markets reacted strongly opening quite high and trade steadily throughout the day. The european markets were still open and did gain some momentum once the fed cut was announced.

How much ever the world is globalized or growing, US remains in the centre dictating terms in the market. We will have to wait and see if this ever changes.