After trending higher in the first hour of trading, equity markets slumped back to breakeven before falling back into negative territory to end the day. The Dow and S&P 500 both finished the session off by 0.4% while the Nasdaq posted a much steeper loss of 0.9% thanks to weakness in the tech sector. Commodities also fell with oil continuing its slide below the $73/bbl. mark and gold slipping as well. Traders apparently continued their push into the U.S. Treasury market; prices rose and bond yields fell to 2.6% on the 10 Year and 0.49% on the Two Year. Equity markets initially appeared to be off to a good start in the early part of the day, boosted by ongoing optimism in the form of M&A activity; BHP continued its push for Potash and Dell and Hewlett-Packard entered into a bidding war for data-storage firm 3Par.
But this optimism was overshadowed by lingering fears over the health of the economy as well as declining investor confidence as small investors continue to pile into bonds as a way to escape the increasingly uncertain equity markets. “How’s that going to get back the 6.6 million goods-producing jobs we lost in this recession?” asked Michael Pento, senior economist and vice president of managed products at Euro Pacific Capital in regards to M&A activity boosting the long-term prospects of the markets. “People hoping that M&A is going to solve the underlying core issue in the economy are crazy.”
One of the big gainers to start the week in the ETFdb 60 was the PowerShares DB Agriculture ETF (DBA) which jumped higher by 0.6% on the day. Today’s gains can largely be attributed to a continued surge in wheat prices, which have added more than 50% since the end of June and close to 10% this month. This dramatic boost in prices for one of the world’s key staple crops came as a result of a Russian wheat export ban after the massive producer experienced its worst drought in more than a century, crushing crop yields across the country. This crisis continues to have a huge impact on the agriculture market and has left farmers scrambling to plant more wheat to take advantage of soaring prices for the in-demand crop. “When wheat starts hitting $7 and $8,” farmers will plant more, said Louise Gartner, the owner of Spectrum Commodities in Beavercreek, Ohio. “I don’t see why they wouldn’t shift some acres into wheat again. They’re going to have an early corn harvest, which will work in their favor, and they have good moisture conditions to double-crop. Farmers respond financially.” [see holdings of DBA here]
One of the biggest losers in the index was the iShares MSCI Brazil Index (EWZ), which slumped by 1.7% in today’s trading session. These losses seem to be the result of weaker commodity prices that cut into Brazil’s agricultural and mineral exports and helped to send the Bovespa index down for a third day in a row. Two of the key companies that showed weakness were beef giant JBS SA and Vale SA, both of which are involved in ongoing speculation of takeoveractivity. Today’s losses continue the rough August for EWZ which has seen its shares tumble by close to 2.3% over the past four weeks [see fundamentals of EWZ here].
Disclosure: Eric is long EWZ.