The announcement that the European Central Bank will buy Italian and Spanish bonds has done wonders for that debt, but it hasn't done much to stem the global financial meltdown.

The yield on Italy's ten-year bond fell to 5.28%, and the yield on the Spanish ten-year bond fell to 5.16% today, after the central bank announced over the weekend that it would start buying debt from the two countries to calm the bond market.

But global stock markets continued the sell-off that began last night in Asia:

  • In Hong Kong, the Hang Seng finished down 2.17%, which was the best level of the day.
  • The Shanghai Composite tumbled 3.8%. The index is now down 21% from its peak.
  • Brazil's Bovespa continued its recent record as the world's worst performing stock market, falling another 5% as of 11 a.m. New York time.

The European stock markets can't seem to find any solace in the ECB decision to intervene. The French CAC 40 Index is down 3.98% and the German DAX Index is down 4.63%. In contrast, the Spanish IBEX 35 Index is down only 1.96%.

That may seem illogical, but Germany-which fought against this latest intervention-is seen as the biggest loser from the decision. German taxpayers will ultimately have to pick up the bill, it is feared (almost certainly correctly), and that could lead to some combination of higher inflation and slower growth.

Back in the United States, the Dow Jones Industrial Average is down 2.13% and the S&P 500 is down 2.79% as of 11:15 in New York. But it's hard to tell if that's a reaction to the continued turmoil in Europe or to Friday's downgrade of the US credit rating to AA+ from AAA.

It has helped limit the damage that S&P got caught in a $2 trillion math error on Friday. That gave credibility to the push back by US Treasury against the move.

S&P wound up caught on its back foot and having to claim that the $2 trillion error, which the company's analysts admitted, wasn't significant to the downgrade, since the downgrade was based mostly on the company's judgment that US politics will make coming up with a credible plan to reduce the deficit just about impossible in the medium term.

A credit rating company that's forced to fall back on its expertise in analyzing politics isn't arguing from the strongest position.

The key now is how Asian markets, given a chance to digest the European and US news, will react overnight. If they fall further tomorrow, it will be hard for Europe and the United States markets to reverse course.

The reaction of European markets also indicates just how much damage the ECB has inflicted on itself by its equivocation through the crisis. Analysts are talking about $1.2 trillion in bond purchases by the ECB. And when that doesn't put a floor under the financial markets, you know that the markets have serious doubts about leadership in the crisis from the bank.

One final word on emerging markets. By my Jubak 2X rule of thumb, a 20% drop in the more volatile emerging stock markets is equal to a 10% correction in developed markets. China and Brazil are now both firmly in that 20% correction zone.

I know this is a scary time, and the markets seem like they're sailing in uncharted territory, but China's markets have a good record of rebounding from 20% drops in August to stage solid rallies.

This time is different-we've never been through a US credit-rating downgrade. But the performance of emerging markets isn't exactly unprecedented so far.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio at http://jubakfund.com/about-the-fund/holdings/.