Despite a strong performance to start the session, U.S. equity markets lost most of their gains in the final hour of trading to finish the day mixed. The Dow finished ahead by 18 points while the S&P 500 was flat and the Nasdaq was unable to hold onto earlier gains, slipping by 0.5%. Commodities finished the day on a more solid footing as gold and oil both rose marginally along with solid performances out of the soft commodity space. In currency markets, the dollar retreated across the board as the greenback suffered pronounced losses against the euro and the Australian dollar, pushing the dollar index down by close to 1% on the day.
Today’s markets moving events came from a variety of sources, as politics continued to weigh on the markets. OPEC met over the weekend and decided to keep the production caps in place despite surging demand out of a variety of emerging markets, news that helped to push crude higher throughout the day. However, the big news came from over the weekend as the Chinese government refrained from raising rates despite a multi-year high for inflation, which came in at 5.1%. “The worries over an interest rate hike turned out to be simply a rise in the bank reserve ratio, which successfully ignited investors’ enthusiasm,” said Liu Kan, an analyst at Guoyuan Securities, in Shanghai. “As long as there are not fresh monetary policy moves this year, the rebound will likely persist.” This news helped to boost markets across the globe, but traders quickly sold off before the close of trading as many sought to square their books before the FOMC meeting tomorrow.
One of the biggest gainers on the day was the iPath DJ-UBS Copper ETN (JJC), which rose by 2.4% in Monday trading. Today’s surge–which helped propel the important base metal to a fresh closing record–came as traders bought up copper as fears over a Chinese slowdown waned. With the lack of a rate hike to cool demand and a weaker dollar benefiting commodities across the board, copper prices had no where to go but up, continuing the recent trend for the red metal. “Investors must still be impressed by the robust nature of the recent Chinese data and its implication for stronger metal offtake,” said Edward Meir, senior commodity analyst at MF Global [see more charts of JJC here].
One of the biggest losers in the ETFdb 60 was the PowerShares DB US Dollar Index Bullish Fund (UUP), which sank by 1% on the day. As investors once again piled into commodities and other risky assets, the demand for U.S. dollars–which many still perceive as a safe haven–tumbled sharply in Monday trading. Investors are also beginning to focus in on the budget deficit, an issue that is becoming an increasingly large concern over the long-term, especially with the recent tax-cut proposal which looks likely to further add to the ballooning deficit. “This move is coming as the market starts to price in the impact of the tax cut deal, and while Moody’s saying it increases the chances of a negative outlook on U.S. ratings isn’t new, traders can’t help but contemplate the ‘what if’ scenario,” said Paresh Upadhyaya, head of Americas G10 strategy at BofA Merrill Lynch [see fundamentals of UUP here].
Disclosure: No positions at time of writing.