U.S. equity markets rose broadly in Wednesday trading as Fed Chairman Ben Bernanke’s comments as well as solid earnings helped to push stocks higher. The Dow finished the day up by 96 points while the S&P 500 and the Nasdaq gained, respectively, 0.6% and 0.8%. Commodities were also a big mover to the upside as precious metals recouped most of their recent losses as gold added close to 1.6% and silver rose by over 2% in the session. Oil markets also continued their move to the upside as WTI crude finished the day above the $113/bbl. mark thanks to a $.91 gain.
Much of these gains stemmed from an extremely weak dollar as the greenback lost about 1.3 cents against both the euro and the pound pushing the dollar index down by $0.40 to the $73.3 mark as Bernanke declared that rates would remain low for an ‘extended period’ and that the bank wouldn’t raise rates for at least a few more meetings. “Extended period is conditioned on resource slack, on subdued inflation and on stable inflation expectations,” Bernanke said. “Once those conditions are violated or we move away from those conditions, that’s the time we need to begin to tighten.”
One of the biggest gainers on the day was the Market Vectors Gold Miners ETF (GDX) which gained 2.3% in the session. Today’s gains came as gold prices soared higher to a fresh record thanks to some dovish comments from Ben Bernanke. These statements suggested to many that interest rates would remain low for the foreseeable future and that a rate hiking campaign wasn’t around the corner, bullish news for gold. “The continued wording of exceptionally low rates for an extended period says it all,” Keith Springer, president of Springer Financial Advisors in Sacramento, Calif., said. “They are more worried about recession and deflation, and will keep rates low. All of this will move gold and silver higher as it will increase inflationary pressures and lower the dollar further”. This sentiment helped to boost the gold miners and thus GDX since the fund is often considered a leveraged play on the price of gold. Due to this perception, the fund often outperforms the precious metal on days that both are gaining, and today was no exception to this rule [see charts of GDX here].
One of the biggest losers in the ETFdb 60 was the iShares MSCI Brazil Index Fund (EWZ) which tumbled by 1.2% in Wednesday trading. Today’s losses largely came from continued speculation the country’s central bank would have to step into the market in order to prevent the real from appreciating any further as well as stop loan growth and hot money inflows into the country. However, the country also took cues from the Fed where a lack of certainty over how the bank will proceed after QE2 ends in June could potentially be impacting markets in the region.“If they are at least opening any door to any collateral support of the Treasury market, and that’s important for Latin America,” he said. “We need to know where rates are going after the end of QE2.” said Enrique Alvarez, who heads Latin American research at IdeaGlobal in at MarketWatch interview. Higher rates could lessen the massive interest rate differential between the U.S. and Brazil and also help to stem the flow of hot money to the region, but with the Fed likely to keep rates subdued, investors are fearing that the Bank of Brazil may be forced to either raise rates further or apply capital controls in order to help stabilize the economy and prevent inflation from taking over in the South American nation [see fundamentals of EWZ here].
Disclosure: long EWZ.