Another choppy session for equities on Friday gave way to a solid afternoon surge as markets rose to close out the week on a positive note. The Dow jumped by 40 points while the S&P 500 and the Nasdaq surged by 0.6% and 0.8%, respectively. While equities climbed higher, commodities slumped in Friday trading as gold and oil were both off marginally and grains and softs also retreated. In the Treasury market, T-Bills continued their slide as yields surged by close to 0.10% for the five, seven, and ten year bonds while the short-term market saw a slight decrease in yields for the day.
Today’s moves came as a result of mixed data from the federal government as the budget deficit rose to $150.4 billion for November, a 25% increase from the November 2009 deficit. This report called into question the wisdom of extending tax cuts, especially considering that if the pact is passed it will result in a $1.5 trillion deficit for the 2011 fiscal year. Despite this bad news, markets managed to rally on news that the U.S. trade balance declined sharply for the month of October, falling from $44.6 billion to $38.7 billion. Sentiment was also buoyed by a strong report out of the University of Michigan consumer confidence figure, which showed a surprising rise to 74.2. These data points helped to balance out the ongoing U.S. budget troubles and send markets into a nice late session rally to close out the week.
One of the biggest gainers on the day was the iPath DJ-UBS Copper ETN (JJC), which soared by 1.3% in Friday’s session. Today’s jump came as copper closed at an all time record high following solid economic data out of China that helped to boost hopes for the base metal’s demand. The world’s most populous nation reported record exports and imports for November as well as a greater-than-expected trade surplus of $22.9 billion. This helped to push up China’s imports of copper by close to 21% when compared with November of 2009, up to a level of 351,597 tons. “The Chinese economic juggernaut still seems to be powering forward,” MF Global analyst Edward Meir said in a note to clients [see fundamentals of JJC here].
One of the biggest losers in the ETFdb 60 was the Vanguard Intermediate-Term Bond ETF (BIV), which sank by 0.6% on the day. This slide came as a result of severe weakness in the U.S. Treasury market, which experienced one of the worst weeks in more than a year thanks to ongoing fears over the U.S. budget situation. Traders are growing increasing concerned that the U.S. government has no fiscal discipline, and this is finally beginning to be reflected in Treasury bonds across all maturity levels; bond yields have spiked recently with the mid-term issues gaining more than 80 basis points in a few months time. However, the outlook for the market remains uncertain, especially given the turmoil in Europe and the uncertainty over the tax cut deal. “The market is oversold from a short- and intermediate-term perspective, but there are no signs yet that momentum has turned favorably for the market,” said bond strategists at RBS Securities [see holdings of BIV here]
Disclosure: No positions at time of writing.