Despite a slump in markets to start the day, U.S. equities managed to rally in late trading to finish both the day and the week higher. The Dow and Nasdaq both finished ahead by 0.2% while the S&P 500 posted a gain of 0.3% thanks to a small rally in the last half hour which pushed the benchmark up to 1,200. Commodity markets finished relatively flat as oil and gold both stayed within one dollar of their respective opening prices, however, soft commodities were not as fortunate as a slump in prices hit these futures markets across the board despite relative weakness in the U.S. dollar index.
Today’s market moving events mostly came from overseas as investors breathed a collective sigh of relief over the debt crisis in Ireland which looks to be resolved within the next few days as the EU and IMF hammer out a debt relief package for the highly indebted nation. Meanwhile, investors mostly shrugged off news from China that the country would be boosting its reserve requirement ratio by 50 basis points up to 18.5%. The move will soak up close to $53 billion from the Chinese financial system and looks to help control inflation and loan portfolio growth in an attempt to cool off the white-hot Chinese economy and prevent it from overheating.
One of the biggest ETF winners on the day was the United States Natural Gas Fund (UNG) which surged by 3.1% to close out the week. Prices continued their recent trend in Friday trading as more predictions of cold weather across much of the Eastern United States helped to boost the price in UNG. In another bullish sign for the beaten down fuel, the number of rigs drilling for natural gas in the United States fell by 19 down to 936 suggesting that supplies– which have been at near record levels in recent weeks– could moderate heading into 2011. “It looks pretty inevitable that the market has gains in front of it,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. “Once we get our first real signs of heating demand, the market will probably reach $4.50 or $4.75.” [see more fundamentals of UNG here]
One of the biggest losers in the ETFdb 60 was the PowerShares DB Agriculture Fund (DBA) which sank by 1.9% in Friday trading. Today’s losses came thanks to a major sell off in two of DBA’s major components that make up one-fourth of the fund’s total assets; sugar and soybeans. The two soft commodities fell by 7.1% and 3.3%, respectively, on the day as traders quickly moved out of these assets after China’s reserve requirement ratio hike. Traders worried that this increase would curb growth and ultimately food demand in the world’s most populous country and decided to close out their positions in case any new developments were announced over the weekend. “Concern that the increase in reserves will be followed by higher Chinese interest rates has encouraged selling,” said Shawn McCambridge, the senior grain analyst for Prudential Bache Commodities LLC in Chicago. “People just want to get out of positions before the weekend.” [see more on DBA's Fact Sheet]
Disclosure: No positions at time of writing.