American equity markets took their cues from overseas in Monday trading as traders digested the impact of last week’s massive quake that struck Japan and sent stocks lower for the day. The Dow declined 0.4% while the broader indexes experienced similar declines; the Nasdaq and S&P 500 both lost about 0.6% in the session. Commodity markets fared much better and continued their role as safe havens, as gold gained a couple dollars an ounce and oil managed to push off of its $100 barrel level and finish the day around $101.50 despite fears over a slowdown in demand from Japan. U.S. Treasury Bonds also advanced on the day as yields sank across most maturity levels thanks to the Japanese tragedy and fears over a nuclear crisis escalating in the country.
One of the biggest ETF winners on the day was the iShares MSCI Brazil Index Fund (EWZ), which rose by 1.2% in Monday trading. These gains were largely the result of firmness in a variety of vital commodities that play a major role in the Brazilian economy. Higher oil prices helped boost Petrobras, while firm grain prices helped to boost a number of more agricultural-focused firms as well. Today’s gains came as somewhat of a surprise to many investors as economists covering the country cut their growth forecast for the next year, predicting that the central bank will have to raise rates in order to cool off inflation in the near term. However, concerns over the shutdown of the Japanese steel industry in the short and mid term lifted Brazil’s many steelmakers to sharp gains on the day as many analysts predicted higher steel prices across the globe in light of the earthquake. “This is positive for the steel sector and negative for the iron ore mining sector,” said Raphael Biderman of Bradesco BBI in a note to clients. “This reduction of steel production in Japan, which is the second largest producer of steel in the world, is likely to impact global production and subsequently increase steel prices.” [see holdings of EWZ here]
One of the biggest losers in the ETFdb 60 was the iShares MSCI Japan Index Fund (EWJ), which plummeted by 7.0% in Monday trading. These severe losses came as traders digested more information regarding the devastating earthquake and the incredible damage that has ensued. Of particular concern to citizens of the country and investors alike,is the rapidly deteriorating situation brewing at some of the country’s nuclear power plants, which are having trouble staying cool and sparking fears over a possible full-scale meltdown. As a result of these fears as well as speculation that this disaster may mire the Japanese economy in recession once again, traders used EWJ as a vehicle for betting on the Japanese economy on a nearly unprecedented scale. The fund, which on average trades 24 million shares a day, saw volume exceed 200 million in Monday’s session, enough to put the beaten down fund into third place for the most traded securities in the U.S. on Monday [see charts of EWJ here].
Disclosure: Eric is long EWZ.