U.S. equity markets slumped in Thursday trading, as the major indexes broke their recent winning streak to finish the day marginally lower. The Dow finished lower by just one point while the Nasdaq and S&P 500 both fell by roughly 0.3% on the day. Meanwhile, commodity markets surged higher with the dollar plunging to its lowest level since December of 2009 as investors sold off greenbacks and bought up euros, pounds, and yen. This dollar weakness helped to push gold above $1,380/oz. and sent the yellow metal’s less expensive cousin silver up to the $24.57/oz. mark, a gain of 2.7% on the day.
Today’s losses were fueled by a surprise announcement out of Singapore, which widened the trading band for the Singaporean dollar. That suggests that the bank was moving to calm the markets after two wild quarters of GDP figures, which showed a 27.3% expansion in the second quarter followed by a 19.8% GDP contraction in the third. The move also suggests that the bank has lifted its annual appreciation target to around 3%-4% from its previous 2%-3% target. The move “represents a moderate tightening of policy … and seems to reflect an assessment that the risk of higher inflation outweighs concerns about externally-driven weaker growth,” said RBC Capital Markets analysts in a note to clients. Closer to home, markets sank on news that jobless claims rose 13,000 to 462,000 for the week while the PPI also rose by 0.4% in September. These two figures suggest that the job situation remains bleak and that input prices may finally be starting to rise, a situation that could put further pressure on the Fed in its policy meeting in November.
One of the biggest winners in the ETFdb 60 was the SPDR Barclays International Treasury Bond Fund (BWX), which jumped by 0.9% on the day. With further weakness in the dollar, more investors were tempted to move their fixed income holdings into foreign bonds where currencies have been more stable or even appreciating as of late. BWX is heavily weighted in local currency bonds denominated in yen, pounds, and euros, so as all of these currencies have gained value in the value of BWX components has climbed steadily [see holdings of BWX here].
One of the biggest losers on the day was the Select Sector Financial SPDR (XLF), which sank by 1.8%. The fund experienced incredible volume of close to 169 million shares–more than twice the average daily volume. This increased interest in the financial sector came as investors grew increasingly worried over the brewing scandal in the mortgage industry being dubbed “Mortgage-gate” by some. Officials in all 50 states have now unveiled a joint investigation into mortgage companies’ conduct during foreclosure proceedings and further scrutiny of staff who did not review loan files but signed off on documents anyway. Due to this, the country’s four largest banks were all off by more than 2.8%, with Bank of America leading on the downside and falling by 5.2% on the day. This news had a heavy impact on the default protection market as well, where U.S. bank credit default swap spreads “have widened sharply amid fears of prolonged litigation,” said Gavan Nolan, vice president of credit research at Markit, in a note. “Bank of America’s spreads are now at their widest levels since July 2009. There are also concerns that the issue could have a damaging effect on the fragile U.S. housing market.” [see holdings of XLF here]
Disclosure: No positions at time of writing.