U.S. equity markets managed to bounce back after Tuesday’s slide, with most major indexes finishing in positive territory as strength in the technology and some basic material names helped to carry equities higher. The Dow rose by a modest seven points while the S&P 500 finished flat and the Nasdaq led the way, posting a gain of 0.6%. Commodity markets also managed to rebound somewhat on the day as gold rose by $3 per ounce and oil prices finished just shy of $107/bbl. Some soft commodities came back in Wednesday trading as well, although results were much more mixed; coffee and lumber surged, but sugar and cotton both were off by more than 2.7% in the session. Despite this commodity resurgence, traders continued to seek refuge in the Treasury market as yields declined marginally across most maturity levels, suggesting that there is still demand for safe haven instruments in this market environment.
One of the biggest winners in the ETFdb 60 was the iShares MSCI South Korea Index Fund (EWY), which surged by 2.4% in Wednesday trading. South Korean equities benefited from a general return to risky assets; since South Korean firms are still straddling that line between developed and emerging, they tend to be among the first places that investors put their capital to work once volatility decreases in the overall market. Continued turmoil in Japan also helped to boost shares of a variety of Korean firms as a prolonged slowdown in the island nation is likely to give Korean firms an advantage on the global playing field heading into the second quarter. “Automaker, tech and chemical firms rose sharply on expectations that production disruptions of Japanese rivals may deepen from the second quarter of this year,” said Yoo Kyung-ha, a Seoul-based analyst at Dongbu Securities [see fundamentals of EWY here].
One of the biggest losers on the day was the PowerShares DB Base Metals Fund (DBB), which declined by 1.4% in Wednesday trading. Today’s losses were likely the result of severe weakness in the headline base metal, copper, which fell by more than 2.2% in today’s session. This drop came as the IMF lowered its growth forecast for Japan from 1.6% down to 1.4%, citing the long lasting damage from the quake as the primary reason for the reduction. The Japanese government also lowered its own forecast, suggesting that the economy is having a great deal of trouble rebounding from the quake and that industrial metal demand is likely to remain light for the foreseeable future. Meanwhile, China called for tighter controls over inflation as the latest Reuters poll showed the the country’s CPI rose to a 32-month high of 5.2%, well above the government’s target of 4.0%. Thanks to this, many now believe that the country will have to aggressively hike rates, something that is also likely to curtail demand for industrial metals and could keep a cap on copper prices in the near term [see charts of DBB here].
Disclosure: No positions at time of writing.