American equity markets tumbled across the board in Thursday trading as a surprisingly high reading from U.S. jobless claims sent markets into a tailspin. The Dow finished the day down 140 points, or 1.1%, while the S&P 500 finished lower by 0.9%. The tech-heavy Nasdaq, however, managed to finish the day down by just 0.5% thanks to positive sessions from both Intel and Cisco. While equities finished the day down, most looked to have a pretty solid session when compared to the commodity markets; natural resources fell by impressive levels that shocked many traders. Gold declined by 2.9% on the day to finish below the $1,475 mark while WTI crude sank by a whopping 9.3%, or more than $10/bbl., on both demand concerns and a stronger dollar. The American benchmark for oil prices is now below the $100/bbl. level thanks to these heavy losses on the day, the first time since mid-March that the benchmark has been below triple digits. News wasn’t much better in the other commodity markets either as silver continued its historic slide, falling by over 11.5% or roughly $4.5/oz. Meanwhile, soft commodities also retreated on the day as a host of these products finished lower by more than 2%. Cocoa and rice led on the downside, falling by 4.9% and 5%, respectively. These incredibly heavy losses in the commodity markets could largely be attributed to a sharp reversal in the U.S. dollar index, which suggested that the greenback was quickly strengthening against most other major currencies. The index gained close to 1.4% today, propelling the benchmark above the $74 level in Thursday trading. Gains for the currency were especially pronounced against the euro which was suffering thanks to some dovish comments from ECB President Trichet. These comments suggested that the bank would not be raising rates again anytime soon and that rates were likely to remain at 1.25% at least through the bank’s next meeting, adding an extra kick to the dollar’s jump.
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which soared higher by 2.8% on the day. Demand for this ETN representation of the ‘fear index’ continued to rise in Thursday trading as markets crumbled on news that applications for U.S. jobless benefits rose to 474,000, the highest level since August. This level represents an increase of about 43,000 and was well higher than analyst predictions which had called for the number to fall to 412,000. Thanks to this reading, many are growing increasingly concerned about the possibility of a double dip recession led by higher levels of unemployment. Due to this fear, VXX had another impressive day of volume as more than 34 million shares traded hands–or roughly twice as much as an average day. Thanks to this move to the upside and the sell off that has been going on all this week, VXX is now up close to 8.2% over the past week, helping to ease the pain for traders who have bought into this product before the market started its fall on Monday afternoon [see technicals of VXX here].
One of the biggest losers in the ETFdb 60 was the PowerShares DB Commodity Index Fund (DBC), which plummeted by 6.8% in Thursday trading. These severe losses came as demand concerns crept into the marketplace and the dollar strengthened, pushing commodity prices down across the board. “It’s panic,” said Michael Shaoul, chairman of Marketfield Asset Management. “You have those super crowded trades. Now you’re in liquidation mode. There’s nothing to do with weak U.S. economic data. It’s not a global financial crisis. It’s a classic liquidation move in a crowded trade.” In fact, today’s losses marked the biggest one day plunge for the asset class since 2009 while the dollar simultaneously gained the most in a single day since October. “This could be one of the most severe corrections that we’ve seen over the last year,” said Sean Corrigan, chief investment strategist at Diapason Commodities Management SA. “If things get really bad, we could possibly retrace half of the rally of the past six to nine months.” Thanks to these extreme fears, DBC is now down close to 10% over the past week alone and down close to 7.8% over the past month, suggesting that the commodity bull market may have peaked for now [see more on DBC's fact sheet].
Disclosure: No positions at time of writing.