American equity markets experienced another choppy session as traders stayed on the sidelines ahead of the fall earnings season which unofficially began after the bell with Alcoa’s report. The Dow finished the day lower by about 0.2% while the the broader indexes managed to hold on to the positives, gaining 0.05% for the S&P 500 and 0.7% for the Nasdaq. Trading was rocky across most of the sectors but utilities and independent oil firms were big losers while giants Apple and Citigroup which rose by 3% and 5.1%, respectively, helped to turn the day around for some of the large caps in their respective sectors. Commodity trading was also shaky as oil edged up and gold fell slightly lower to put the precious metal below the $1,670/oz. mark. Beyond these headline commodities, the real story was in the grain market as all of the products in this category surged on the day. Wheat jumped by close to 8% in Chicago trading while corn (up 6.6%) and soybeans (up 4%) surged as well, far outpacing the other soft commodities in Tuesday trading.
In currency trading, the dollar continued to weaken against many of its major counterparts, falling slightly against both the euro and the yen. Yet, the dollar did manage to hold its own against the pound and the resource currencies, helping to keep the losses on the U.S. dollar index minimal on the day. However, with that being said, Slovakia voted to reject an expansion of the EFSF, a situation that could lead to more weakness for the euro in the days ahead, unless of course a new vote from the country looks to approve the measure in the coming days.
One of the biggest ETF winners on the day was the PowerShares DB Agriculture Fund (DBA) which added 1.4% in the session. Today’s gains came as traders bought up futures in a variety of soft commodities ahead of tomorrow’s key USDA report. The report gives investors an updated forecast of crop yields and is generally a key event for the markets and could potentially create a great deal of volatility in the space. “Every report is a seriously, seriously high risk day, and tomorrow is going to be no different,” said Jason Ward, an analyst with Northstar Commodity in Minneapolis. “Nobody is willing to take any risk going into these reports.” Thanks to this, futures contracts for December delivery in a number of grains soared in Tuesday trading as wheat rose by about 49.25 cents to $6.60 a bushel, corn gained 40 cents to finish at $6.45 a bushel, and soybeans jumped by 58 cents a bushel to finish at the $12.355 mark. Since corn, wheat, and soybeans combine to make up three-eights of the fund’s total assets, these strong performances helped to carry DBA higher on a day in which other softs, such as cocoa, coffee, and sugar, finished the day lower by more than 1% [see more on DBA's Fact Sheet].
One of the biggest losers in the ETFdb 60 was the PowerShares DB Base Metals Fund (DBB) which sank by 2.0% on the day. Today’s losses in this base metal fund were largely due to worries over the European debt crisis and its impact on demand of key commodities such as copper, aluminum, and zinc. “Copper continues to have difficulty finding too much support,” said Sterling Smith, a market analyst at Country Hedging. “The situation in Europe remains very much in the air. That allows markets that are economically sensitive like copper to turn and give back their gains.” This worry is likely to be further confirmed by the Slovak vote as the lack of an expanded EFSF could pose a systemic risk to many of the troubled economies in the region. As a result, investors could see weakness in this fund in the days ahead thanks to these concerns. Additionally, base metal investors have to be worried about the health of the domestic industry as well thanks to Alcoa’s bearish report. The company’s shares were down close to 4.5% after hours and this looks likely to trickle into DBB in future sessions as well [see charts of DBB here].
Disclosure: No positions at time of writing.