Equity markets experienced a rocky start to November as exchanges were unable to hold onto sharp early morning gains. All three of the major U.S. benchmarks were up markedly higher in the first half hour of trading thanks to robust Chinese PMI figures, but soon tailed off in midday trading before sinking sharply in the final hour of trading. While all three fell into the red, only the Nasdaq stayed there; both the Dow and the S&P 500 managed to climb back into positive territory, posting modest gains of 0.1%. Despite this lukewarm performance out of the markets, oil managed to add to its recent gains and finish the day ahead by $1.5/bbl. in what turned out to be a very mixed day in the world of commodities.
Today’s rocky market came at the hands of light volume, which was roughly 1.7 billion shares below the year-to-date daily average as many traders waited for the bigger events later on this week before making any moves to their portfolios. “We had a handful of positive macroeconomic data points, which contributed to the better tone in markets today, but the lack of follow-through underscores that Republican gains and an expansion of the Fed balance sheet are expected,” said Barry Knapp, managing director of equity research at Barclays Capital in New York. This positive data came in the form of a surprise 0.9 point movement in the Chinese PMI and a similarly expansive reading from the U.S. ISM manufacturing report, which showed that activity had spiked to 56.9 from analyst predictions of a mild increase to 54.4.
The ETFdb 60 Index slid 1.35 points, or 0.1%, as investors largely held their ground ahead of a series of important meetings and data releases later this week.
One of the biggest gainers on the day was the iShares MSCI Brazil Index Fund (EWZ), which jumped higher by 1.3%. Today’s modest gains came after the country elected their newest president, Dilma Rousseff, who beat challenger Jose Serra by a margin of 56%-44%. In one of her first statements as President-elect, Rosseff declared that she would tighten the country’s budget and contract government spending in an effort to keep the country growing strongly and continue to lift millions out of poverty. However, some are not confident that she will implement these changes and will be looking to make a more decisive break with her predecessor the wildly popular, President Lula. “Many market participants are skeptical that Rousseff will implement tighter fiscal policy,” Tony Volpon, a Latin America strategist in New York at Nomura Securities International Inc., wrote in a note to clients. “It will be key for Rousseff to move away from the shadow of her political patron, President Lula, by making decisive breaks with some of the present government’s policies and personnel.” [see fundamentals of EWZ here]
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG), which sank by 5.4% in Monday trading. Today’s sharp drop came as traders sold off the fuel despite colder weather across much of the Northeast and Midwest due to robust supply levels, which look likely to satisfy the market’s demands for the foreseeable future. “I know we saw a little bit of cold creeping in for the next week, but the fact is we’re going to have record levels of storage,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn. In fact, at the end of last week, U.S. natural gas storage stood at 3.753 tcf or just shy of the all-time record high of 3.837 tcf set last November suggesting that there is a significant headwind to higher prices in the near future [see charts of UNG here].
Disclosure: Eric is long EWZ.