Equity markets surged to start August with all the major indexes posting gains in excess of 1.8%. The broad S&P 500 led the way on the upside with a 2.2% gain on the day which helped to boost demand for commodities, specifically oil which surged by $2.5/bbl. to finish the day close to the $81.5/bbl. mark. This boost came after solid manufacturing and construction data in the U.S. as well as robust earnings out of several European banks which helped to ease investors’ fears over the health of developed market economies. Two of the key earnings reports came from BNP Paribas and HSBC Holdings which both reported a surge in earnings for the second quarter despite ongoing turmoil in European markets. BNP Paribas reported a 31% increase in profits while HSBC more than doubled its profits as loan impairments and other provisions fell to their lowest level since the start of the financial crisis, helping to send shares sharply higher in many European markets.
One of the biggest gainers on the day was the Vanguard European ETF (VGK) which soared by 3.9%. This gain came after shares in major banks surged higher and pulled the rest of the market with them; the Stoxx 600 European bank index gained 3% on the day. This helped to increase demand for risky assets as tensions over the European debt crisis eased and investors piled into bank stocks in order to help beef up current income in light of record-low yields in much of the developed world. “With the earnings season showing corporations on the whole being in a much better state that has previously been expected, investors are happy to stick their money into equities. Dividends are being increased left, right and center and there are few assets returning such good yields, so why would you have your money anywhere else?” asked Simon Denham, head of Capital Spreads in London [see holdings of VGK here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG) which fell by 4% to start August trading. This drop came after analysts cut their estimates for air conditioning demand and tempered their expectations for the near-term hurricane situation. Cooling demand in the U.S. was 21% above normal today compared with a July 30 forecast for 24 percent above normal, according to David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri. Demand will be 31 percent above average tomorrow, compared with last week’s forecast of 34 percent.“We’re seeing a lower number of cooling degree days in the near-term forecasts, and the tropical activity doesn’t look as worrisome,” said Teri Viswanath, director of commodities research at Credit Suisse Securities USA in Houston [see more charts of UNG here].
Disclosure: No positions at time of writing.