U.S. equity markets slumped to start the Monday session as fears over the European debt situation weighed on stocks. However, markets made a late session push in afternoon trading to finish the day down only marginally; the Dow and the Nasdaq both fell by roughly 0.35% while the broader S&P 500 only declined by 0.1%. The biggest movers on the day instead came from the currency and commodity markets, where the U.S. dollar index rose by 0.5% after posting solid gains against the euro, which fell by close to 1.3% against the greenback. Despite a strengthened dollar, gold and oil both managed to hold onto their gains as gold squeezed by with a $4/oz. gain and oil jumped by 2.3% on the day.
Undoubtedly the biggest news on the day was the bailout package for the highly-indebted Irish economy now totaling €85 billion. While markets were relieved that a deal was finally struck, some remain concerned that the Irish government will not be able to pass an austerity package in early December due to its extremely small majority in the lower house of Parliament. “The bottom line is that the crisis is far from over,” said Kit Juckes, head of forex strategy research at Societe Generale, in a note to clients. “The Irish package makes it more likely that the euro won’t break up — and we still forecast [the euro] to trade at $1.50 next year — but how far it falls first we just don’t know.” This ongoing speculation helped to sink the markets in early Monday trading before investors finally came around to solid retail figures, which showed robust demand in the all-important Black Friday weekend. This burst of optimism helped to boost stocks to within striking distance of their Monday morning open but failed to completely cancel out the fears of a European debt contagion.
One of the biggest losers on the day was the United States Natural Gas Fund (UNG), which sank by 4.5%. Today’s sharp loss came as traders locked in some of their profits from last week as the market once again focused in on the robust supply levels in the natural gas market. Stockpiles of the popular heating fuel are now 9.5% above the five-year average, suggesting that even if an extremely cold winter hits the market will be able to withstand any increase in demand. “The market knows we can handle just about anything Mother Nature can throw at us this winter,” said Phil Flynn, an analyst with PFGBest in Chicago. “We haven’t seen a price level that has caused natural gas production to fall off dramatically.” [see more charts of UNG here]
One of the biggest ETF winners was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which soared by 6.8% on the day. Demand for the main fund linked to the ‘fear index’ was once again high today as fears over a European debt crisis continue to weigh on the markets. Trading volume in VXX was once again well above average, with over 12.6 million shares trading hands–roughly four times the daily average. Although the fund has managed to post solid gains in recent days thanks to widespread investor fears, the product is still down over 12% in the past month alone showing how powerful the effects of contango can be on any market [see more fundamentals of VXX here].
Disclosure: No positions at time of writing.