After a disappointing GDP growth number sent the markets lower to start the day, equities surged back in afternoon trading to finish the day at breakeven, with only the Nasdaq registering a measurable gain posting an increase of 0.1%. This came as a result of the U.S. reporting Q2 GDP growth of just 2.4%, slightly less than the expected reading of 2.5%. This news sent traditional safe-havens such as T-Bills and gold into higher demand; 10 Year yields fell to 2.9% while gold gained 1.1% to finish the day at the $1,181/oz. mark. However, traders were boosted by two unexpectedly higher reports later in the day which helped the markets to make up much of their losses in the final day of July trading. The University of Michigan/Reuters consumer sentiment index for July rose slightly more than expected to 67.8 from a preliminary reading of 66.5. Meanwhile, the manufacturing sectors saw a boost from the Chicago PMI which rose to 62.3 this month from a 59.1 reading in June. This was especially bullish since economists had predicted a drop to 56.5 which helped to leave stocks on a level footing heading into August trading next week.
One of the biggest winners in the ETFdb 60 was the United States Natural Gas Fund (UNG) which extended its winning streak by posting a gain of 1.9% on the day. This boost came after traders continued to buy the commodity on a hot August outlook and concerns over Gulf hurricane activity. Traders were also buoyed by robust profits from several large oil companies who are seeing increased dependence on natural gas to generate revenues. This trend looks likely to continue in the near future and could lead to more production and utilization of the fuel which would be bullish for UNG. “We are already seeing international and national oil companies buying US gas assets – and this is a trend we expect to continue,” predicts Mark Lacey, manager of Investec’s global energy fund. “The rationale for this spate of activity is that US gas is extremely cheap. It is priced at the equivalent oil price of less than $30 per barrel. Gas is also a much cleaner source of energy relative to coal and fuel oil, and these assets have a resource life of over 20 years.” [See fundamentals of UNG here]
One of the biggest losers on the day was the iShares MSCI Japan Index Fund (EWJ) which fell by 0.9%. This came after Japanese markets continued their slide as the yen rose against most of the world’s major currencies. The yen was trading as low as 86.13 against the dollar which helps cut into Japanese exporter profits since as the currency strengthens it becomes less competitive and more expensive in foreign markets. It “looks like the earnings problem associated with the strong yen is hurting sectors in Japan.” said Richard Hastings, macro and consumer strategist at Global Hunter Securities [see holdings of EWJ here].
Disclosure: No positions at time of writing.