Equity markets started the day on a strong note as fears over the health of global economy temporarily subsided, allowing the major indexes to post solid gains to kick off December. The Dow surged by 250 points while the Nasdaq and S&P 500 both rose by 2.1% on the day, helping to reverse the recent slump in U.S. equities. Commodities also surged higher as the U.S. dollar index fell by roughly 0.80%, which helped to push gold within striking distance of $1,390/oz. and oil within 30 cents of the $87/bbl. level. Thanks to this declining level of fear, investors sold off U.S. Treasury bonds across virtually all maturities; the yield on the Ten Year Note traded close to 3.00% and the Two Year Note rose by eight basis points up to 54 bps.
The main catalyst for today’s surge was strong data in a variety of market sectors, which helped to ease investor concerns over near crisis conditions in Europe. Among the biggest news was the robust increase in car sales, with Detroit’s big three averaging gains of close to 20% when compared to October. Meanwhile, on the jobs front, the ADP report showed that private payrolls rose 93,000 in November while the October number was revised upwards by close to 40,000 jobs, suggesting that the sluggish economy is finally starting to slowly chip away at the uncomfortably-high unemployment rate. “Today’s a day where there are a lot of data points that support those that think there is a self-sustaining economic recovery in place,” said Fred Fraenkel, vice chairman of Beacon Trust Co.
One of the biggest ETF winners on the day was the iPath DJ-UBS Copper ETN (JJC), which surged by 3.5% to start December. Today’s gains were the result of a positive reading from the ISM manufacturing survey, which jumped to 62.5 from a 60.6 reading last month. This increase, which came in contrast to analyst expectations of a modest decline, suggest that manufacturing demand could spike in the near future, possibly increasing need for this key base metal. “The market is looking at supply and demand balances down the road and all are acknowledging that there will likely be a tight supply environment going forward,” said Bart Melek, commodity strategist with BMO Capital Markets [see fundamentals of JJC here].
One of the biggest losers in the ETFdb 60 was the iShares Barclays MBS Bond Fund (MBB), which tumbled by 3.1% in Wednesday’s session. This slide was largely the result of a panel in Washington D.C. earlier today which consisted of the Senate Banking Committee and the Comptroller of the Currency, John Walsh. In prepared remarks, Walsh said that his agency is directing national bank services to suspend foreclosures for borrowers actively seeking to qualify for loan modifications, according to Bloomberg. Furthermore, Fed Governor Dan Tarullo said that “the problems are sufficiently widespread that they suggest structural problems in the mortgage servicing industry.” Tarullo continued to note that “it has now become evident that significant parts of the servicing industry also failed to handle foreclosures properly.” These remarks suggested to many investors that a severe slowdown in foreclosures could be coming, and that it may become extremely difficult for companies to work through their bad loans. This news had the effect of sinking MBB, which is now down 3.5% on the week [see technicals of MBB here].
Disclosure: No positions at time of writing.