Although U.S. equities started the week on a high note, they soon tumbled and finished the session mixed as spiking commodities stunted investor confidence. The Dow finished the day ahead by 23 points while the S&P 500 and the Nasdaq both were flat on the day, as big pharma helped to power the blue chips higher on the session. The commodity spike came from a number of natural resources, as precious metals gained and most oil products surged as well. Soft commodities, and especially the grains, also had a strong day as wheat (up 4%) and corn (3.3%) led the market higher. Despite this volatility in the commodity markets, the U.S. dollar was relatively stable, although U.S. Treasury bonds did see some inflows in mid-day trading as most of the indexes were at the lowest points of their respective sessions.
One of the biggest gainers on the day was the iShares FTSE/Xinhua China 25 Index Fund (FXI), which gained 1.9% in Monday trading. Today’s gains in the popular China fund came as traders bought Chinese equities thanks to encouraging signs from recent data reports regarding inflation. The most important of which was the HSBC’s China Purchasing Managers’ Index hovered around its seven-month lows thanks to slow growth in terms of new orders which helped to calm worries over cost inflation. “Economic growth is only moderating rather than slowing too much. More importantly, price hikes have also started to slow,” said Qu Hongbin, an economist at HSBC’s chief economist in China. “These confirm our view that quantitative tightening is working. So as long as Beijing keeps tightening for another three to four months, inflation should start to slow meaningfully in the second half of 2011.” Thanks to this view, many are beginning to suspect that inflation will not spiral out of control in the country, easing the fears of many investors across the world and leading to a small surge in interest for FXI [see holdings of FXI here].
One of the biggest losers in the ETFdb 60 was the iShares MSCI Japan Index Fund (EWJ), which tumbled by 1.4% on the day. Today’s losses to the most popular fund tracking the disaster-stricken country were largely thanks to two key reports. First, workers at the plant in Fukushima suggested that radiation may leak for months out of the troubled plant into the Pacific Ocean, potentially causing a long-term disaster to the area. Workers also revealed that they have been forced to dump radioactive water into the sea, although TEPCO has said that it has a low radioactive content. Additionally, a closely watched business survey in the nation, the Tankan, turned decidedly negative after the quake and remains so, suggesting that investors are increasingly gloomy about the health of the Japanese economy in light of the ongoing nuclear disaster. Additionally, it was reported that small and mid sized companies, who were already negative before the quake, are now even more pessimistic about the Japanese economy over the next three months. Thanks to this report, EWJ sold off again today as investors continued to shun Japanese equities in light of slumping confidence and continued concerns over the country’s nuclear disaster [see charts of EWJ here].
Disclosure: No positions at time of writing.