U.S. equity markets tumbled to start Monday’s session, but picked up steam in the final hours of trading to moderate losses. The Dow tumbled by 0.3% in Monday trading while the S&P 500 fell by just 0.1%. Meanwhile, the Nasdaq managed to recoup its earlier losses and finished the day ahead by 0.2%. Commodities managed to rise across the board as the dollar weakened and supply issues pushed oil up by 1.6% in the session. Despite a weaker dollar and a moderately higher gold price, demand for U.S. Treasury bonds remained robust as prices rose and yields tumbled across most maturity levels.
Markets sank on initial reports of the ECB buying up Portuguese debt, which suggested to many that the euro zone was no where near close to the end of its crisis and that the contagion may be spreading to the Iberian peninsula. “There is no question, that there has been no long-term structural fix there,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. Traders also reacted to a report that a major crude oil pipeline ruptured in Alaska, potentially choking off supplies from one of the country’s most important sources of the vital fuel. Nevertheless, equities managed to bounce off of their session lows thanks to growing optimism over a global economic recovery and speculation over the iPhone’s launch on Verizon. “All in all it’s sort of a mixed day given the tragic events over the weekend and the fact that there is no economic data to guide the market,” said Stuart Hoffman, chief economist at PNC Financial Services.
One of the biggest losers in the ETFdb 60 was the iShares MSCI Emerging Index Fund (EEM), which fell by 1.0% on the day. This popular emerging markets fund sank on broad weakness in many of the world’s most rapidly developing countries. This drop was largely due to ongoing fears over food price inflation in many of the world’s emerging countries, which may force Asian central banks to raise rates sooner rather than later. “Inflationary threats present some kind of general feature in the emerging world; it’s something you don’t see necessarily in advanced economies,” ECB President Jean-Claude Trichet said today at a briefing in Basel, Switzerland, after chairing the Global Economy Meeting. “It’s clear that it is extremely important that we all keep control of inflation expectations, and that calls for appropriate decisions.” Thanks to these fears over a possible rate hike, investors sold off their shares in many emerging nations with especially heavy losses in India, Indonesia, and Thailand [see fundamentals of EEM here].
One of the biggest gainers on the day was the PowerShares DB Commodity Index Track Fund (DBC), which rose by 1.2% in Monday’s session. This was largely due to the fund’s heavy weighting in oil and oil derivatives such as heating oil and RBOB Gasoline, which benefited from growing concerns over crude oil supplies in the U.S. given the near total shutdown of the Trans-Alaska pipeline. “It’s really all about the pipeline,” said Matt Smith, an oil analyst with Summit Energy in Kentucky. Investors are nervous about whether it will last “so the initial reaction is buy the rumor” even though existent crude-oil supplies are plentiful, he said. The U.S. gets close to 15% of its oil from this source so any prolonged disruption could adversely impact supply levels and send oil prices surging higher until the issue can be resolved [see more on DBC's fact sheet].
Disclosure: No positions at time of writing.