After starting the day higher, U.S. equity markets fell back during Thursday trading but still managed to finish the day in the green. The S&P 500 led on the upside with a gain of 0.5% while the Nasdaq and the Dow both gained 0.3%. Commodities fell back on the day with oil and gold both retreating roughly 0.8% while U.S. Treasury securities continued their decline with the 10-Year note’s yield surging to 2.76% and the 2 year rising to 0.56% as investors embraced risky assets.
The big movers of the day were reports out of Washington which suggested that the U.S. economic situation may be improving slightly. The trade deficit shrank by 14% in July thanks to a 1.8% boost in exports and a similar loss in imports. “The rise in exports supports the view that the recovery in manufacturing is alive and well, while the decline in imports suggests that the consumer is still focused on boosting savings, not spending,” economist Steven Ricchiuto of Mizuho Securities wrote in an email. Possibly thanks to this surge in exports, the weekly jobless claims declined modestly by 27,000 to 451,000 for the week; a far bigger decrease than analyst estimates which had projected jobless claims of 470,000. However, some cautioned that this may just be the result of the holiday shortened week and that this drop may nothing more than a Labor Day anomaly.
One of the big winners on the day was the iShares MSCI Pacific Ex-Japan Index Fund (EPP) which surged by 1.3%. This jump came after Australia reported a drop in its unemployment rate to 5.1% down from 5.3%, beating analyst expectations for a 0.1% decline. “The Australian economy is clearly on fire. They are creating jobs at break-neck speed,” HSBC economist Frederic Neumann told Dow Jones Newswires. This is especially good news for holders of EPP since Australian securities make up roughly two-thirds of the fund’s total assets [see more on EPP's holdings here].
One of the biggest losers in the ETFdb 60 was the iPath DJ-AIG Copper Total Return Sub-Index SM ETN (JJC) which fell by 1.8% on the day. Today’s sharp decline came after a report that China was investigating positions in rubber futures which spurred speculation that some traders might be forced to sell their commodity holdings. This news led to declines in a variety of metal markets as well as the soft commodity sectors as fearful traders reevaluated their positions. “The actions in China overnight are simply a warning shot to speculators,” said Alex Heath, the head of industrial-metals trading at Royal Bank of Canada Europe in London. “Liquidation by a number of local brokers on hearing about the investigation unnerved the whole market.” [see fundamentals of JJC here]
Disclosure: No positions at time of writing.