The week on Wall Street opened with a bang, as investors raced to snap up risky assets after Beijing’s surprising announcement on Saturday night that the central bank would allow the yuan increased flexibility against the U.S. dollar. China surprised investors and international officials who had observed Beijing’s frustration over calls for a more flexible currency, giving global equity markets a boost to start the day (see Five Surprise ETF Winners From China’s Policy Shift). But once again weakness in the euro and concerns about the drag on global growth flared up, erasing early gains towards the end of the day. Elsewhere, the investigation against Google’s Street View technology ramped up, with Connecticut Attorney General Richard Blumenthal leading the case.
Among the biggest losers on the day was the the United States Natural Gas Fund (UNG), which dropped more than 5% on the day. UNG’s plunge came after prices had surged over the last month, thanks to a combination of strong domestic demand, concerns about an active hurricane season (see Five Factors Behind UNG’s Spring Rally). Monday’s decline came as natural gas failed to break through a key technical level for the fifth consecutive day, leading some investors to believe that the recent rally has run out of steam. Separately, the number of rigs drilling for natural gas in the U.S. fell from 954 to 953 last week according to Baker Hughes, suggesting that the level of drilling has stabilized.
Among the biggest winners on the day was the iShares FTSE/Xinhua China 25 Index Fund (FXI), which added 2.2% as investors cheered decisions to end the yuan’s two-year peg to the dollar. Markets looked past the potentially detrimental effect to Chinese companies that derive significant international sales, betting that the new currency policy would help to transition the Chinese economy from an export-dependent model to one more focused on domestic consumer spending. “China is now speeding up the restructuring of the economy and transforming its growth model, a task that has been made even more important and urgent by the international financial crisis,” said the central bank in a statement.
Disclosure: No positions at time of writing.