U.S. equity markets finished flat to start the week as conflicting data once again left traders with little conviction over how the economy will perform in the near future. While the Dow finished in the red by one point, both the S&P 500 and the Nasdaq managed to finish in positive territory. However, the big winner on the day was the safe haven investments; gold surged higher by $10/oz. and Treasury bills continued their ascent higher, pushing yields to near-historic levels. The Ten-year note yield fell by 10 basis points and the 2 year note yield slumped to just half a percent, suggesting that investors are willing to store assets in these ultra-low yielding securities in order to avoid the ongoing market turmoil. Data that came out earlier today certainly helped to confirm the gloominess in the markets; Japan’s economy grew by just 0.1% in the previous quarter, well below first quarter growth of 1.2% and short of expectations. Such a small growth level in what is now the world’s third largest economy did not help Asian markets, and reflected poorly on other highly-indebted developed markets in Europe and North America.
The ETFdb 60 Index climbed higher by 3.19 points, or 0.3%, as winners outnumbered losers by nearly two-to-one. Volume was light to start the week, with many investors squeezing in one last end-of-summer vacation.
One of the biggest winners on the day was the iShares MSCI Brazil Index Fund (EWZ), which rose by 2% to start the week. Today’s gains can largely be attributed to rumors that Brazilian airline Tam would merge with Chile’s Lan Airlines to form the biggest airline company in South America. Tam’s shares surged by more than 24% in U.S. trading on Monday and helped to propel the Bovespa index to another day of gains after its four day losing streak last week [see charts of EWZ here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund LP (UNG), which fell by 2.3% in Monday trading. This drop came thanks to a milder weather outlook and robust supply levels, which suggested to many traders that demand be limited and supply will be ample to meet any electricity demand spikes. Supply looks likely to continue to head higher in the near future as well; according to the Wall Street Journal “the natural gas rig count increased last week to 992 rigs, up nine from the previous week. The gas rig count has increased by 44% from the same week a year ago, according to oilfield services provider Baker Hughes Inc. (BHI). The rig count has surged this year as producers, which have locked in prices on future output, continue to exploit natural gas bearing shale rock formations.” [see technical analysis of UNG here]
Disclosure: Eric is long EWZ.