After slumping to start the day, equity markets stayed in positive territory only to fall back after the FOMC minutes were released in the final hour of trading. While stocks may have finished the day where they started, bonds and commodities experienced a more volatile day with yields on government debt once again plunging as the 10 year note sank below 2.5% and the 2 year fell below 0.5%. Meanwhile, precious metals continued their ascent with gold finishing the day just under $1,250 oz. and silver rising to $19.3/oz. Oil was not as lucky; prices of crude for October delivery fell by almost $3/bbl., or close to 4%.
Today’s rocky session was thanks in large part to the minutes released by the Federal Reserve regarding the last policy meeting. The minutes said the Fed panel agreed it would “need to consider steps it could take to provide additional policy stimulus tools if the outlook were to weaken appreciably further.” The vote on continued easing was 9-1 with the only opposition coming from Kansas City Federal Reserve President Thomas Hoenig, who felt that plowing expiring mortgage loans back into Treasury Bills would only further complicate the Fed’s eventual exit from the market. Once this news was released, equity markets immediately fell as the Dow lost more than 50 points in a matter of minutes.
The ETFdb 60 Index inched higher by 1.02 points, but still finished the month of August deep in the red.
One of the biggest gainers on the day was the iShares MSCI Brazil Index Fund (EWZ), which rose by 1.3%. This jump comes thanks to weaker data on the manufacturing side and a moderate inflation rate, which could prevent the Brazilian central bank from raising rates later this week. The mid-month inflation reading was just 4.4%, slipping under the 4.5% target for the Central Bank. Meanwhile, output at mines and factories rose 8.7% compared to analyst predictions of a 9.5% increase. “We think there is a chance of a 25 [basis points hike], but after that should be an extended wait and see period,” said Win Thin, senior currency strategist at Brown Brothers Harriman, who went on to discuss market expectations for rates to hold at just under 11%. “We note that the weekly central bank survey shows analysts are now looking for a year-end policy rate of 10.75%.” [see holdings of EWZ here]
One of the biggest losers in the ETFdb60 was the iPath DJ-UBS Copper ETN (JJC), which fell by 1.3% in Tuesday trading. Today’s losses were due to weak economic data which tempered investor demand for the popular industrial metal. Business activity in New York City fell while activity slowed down in the Midwest region as well, further confirming the Fed’s gloomy outlook for the rest of 2010. Additionally, several analysts cited ‘book squaring’ at the month end for heavily impacting the prices, suggesting that today’s drop may have just been temporary in nature [see charts of JJC here].
Disclosure: Eric is long EWZ