American equity markets plunged to start the month of August as severe weakness in the ISM manufacturing survey sank stocks to start the week. However, markets rebounded about half way through the day as hopes of a solid debt deal carried markets higher to finish the session close to breakeven. The Dow fell by 0.1% while the broader indexes saw heavier losses of 0.4% each, as weakness in the health care segment carried these benchmarks to the downside. Commodities, on the other hand, were also mixed as strength in most of the energy and soft markets fought against weakness in WTI crude, and the metals in Monday trading. This came after the U.S. dollar had an extremely rocky session; the greenback finished lower by a cent against both the pound and the euro, but managed to finish higher against the yen despite the fact that the currency pair was trading near its all-time low earlier in the session. Somewhat surprisingly, the bond market managed to experience inflows, as the 10 Year saw yields fall to the 2.75% mark while the 2 Year was flat on the day. Although these figures were well off their lows in terms of yield for the session, any move lower in bond yields has to be encouraging considering that we could be roughly 24 hours away from default.
One of the biggest ETF winners on the day was the United States Natural Gas Fund (UNG) which rose by 0.8% in Monday trading. These gains were largely the result of hot weather being forecast for much of the nation suggesting that power demand from air conditioners could surge, putting pressure on natural gas in the process. Analysts expect that hotter-than-normal weather will strike much of the East, Midwest, and South over the next few days, as temperatures are expected to be nearly 108 in Dallas and close to six degrees above normal in Pennsylvania. In fact, some are expecting this heat to boost cooling demand by as much as 28% over the next week. ”We are going to continue to see prices kind of take direction from the short-term weather outlook,” said Eric Bickel, an analyst at Summit Energy Services Inc. in Louisville, Kentucky. “Last week’s drop created a little buying opportunity.” As a result, investors scooped up beaten down natural gas contracts and sent UNG to a solid performance on the session. However, UNG is still down close to 4.3% over the past week, suggesting that more than a few days of warm weather will have to pass in order for this popular product to make it back into an uptrend [see more charts of UNG here].
One of the biggest ETF losers on the session was the PowerShares DB Base Metals Fund (DBB) which slumped by 1.5% to start the week. Today’s losses were largely a result of the weakness in the ISM report, as the crucial manufacturing survey slumped well below analyst expectations. In this latest reading, the index fell from 55.3 down to 50.9– 50 represents the breaking point between growth and contraction– and was well below expectations which called for a modest fall to 54.5. Furthermore, the employment component of the index, while it was showing expansion at 53.5, was far below the June reading which came in at 59.9, suggesting that not only is the broad manufacturing corner of the economy slowing down but employment prospects are becoming more scarce as well. Thanks to this gloomy outlook, the industrial metals corner of the market sold off significantly as traders assumed that there would be less demand for these products if manufacturing experiences a slowdown. Copper, arguably the most famous metal in DBB, was down close to 7.5 cents a pound, close to 1.7% lower to start the week, helping to send DBB down on what was an overall rough day for metals [see more on DBB's fact sheet].
Disclosure: No positions at time of writing.