U.S. equity markets had another choppy session in Wednesday trading as fears of a rate hike in China weighed on stocks and commodities. Nonetheless, American exchanges managed to finish the day in positive territory across the board as the Dow rose by 0.1% and the Nasdaq and the S&P 500 both posted a 0.4% gain. While stocks had an up-and-down session, they oscillated in a narrow range for much of the day, in contrast to the heavy losses in both the U.S. Treasury and commodity markets. Most energy commodities–with the exception of natural gas–sank on the day, while precious metals also fell across the board.
Today’s main catalyst was the impact that the proposed tax agreement is likely to have on growth and the Federal budget deficit. Although many bought up shares on hopes that the program would act as a stimulus of sorts for consumers, traders also feared that the program–which offered a payroll tax cut and a low rate for estate taxes–would further balloon the already out of control deficit. Furthermore, the Democrats’ opposition to the plan seems to be more fierce than initially anticipated, leaving some uncertainty as to the future of the bill in Congress. This worry helped to spike U.S. Treasury Bond yields in the biggest upside move since the fall of Lehman Brothers during the financial crisis of 2008.
Investors also worried about the impact of China on the global market, especially given the fact that the nation moved up its data release from next Monday to this Saturday, leaving many to assume that a rate hike was on the horizon. “China has moved its inflation report forward to Saturday, which more than suggests that we will see another rate hike this coming weekend,” Mads Koefoed, a market strategist at Saxo Bank A/S in Copenhagen, said. “The markets are likely to remain unchanged for the rest of the year.”
One of the biggest winners on the day was the often volatile United States Natural Gas Fund (UNG), which rose by 4% in Wednesday trading. Today’s gains came after continued cold weather across much of nation, including near zero temperatures across much of the Midwest and East Coast. As a result, traders bought up UNG in anticipation of tomorrow’s EIA report, which many are forecasting to show a huge drawdown in natural gas supplies. “We’ve been down so far for so long, up is the path of least resistance,” said Larry Young, of Covenant Trading [see charts of UNG here].
One of the biggest losers in the ETFdb 60 was the Market Vectors Gold Miners ETF (GDX), which sank by 1.9% on the day. Today’s slump among the gold miners came as traders sold off their positions in the yellow metal thanks to fears of a slowdown in China and surging yields in the U.S. Treasury market, which made gold less appetizing as a safe haven. Traders also sold off their positions in the metal in order to lock in profits after gold hit a fresh all-time high in recent trading. “Gold is dominated by short-term traders at the moment,” said Frank Lesh at FuturePath Trading LLC in Chicago. “Big players have taken a profit after record highs, and the dollar has stabilized, so short-term traders will sell gold and commodities.” [see holdings of GDX here]
Disclosure: No positions at time of writing.