American equity markets started the day out on a high note but soon lost most of their gains as traders sold off holdings ahead of the weekend. Nevertheless, all of the major indexes managed to squeak by in the green for the day as the Dow gained 84 points and the S&P 500 and Nasdaq posted more modest gains of 0.4% and 0.3%, respectively. Meanwhile, commodity markets finished the day markedly ahead as well; gold gained more than 1% on the day and oil added a few cents a barrel thanks to ongoing tensions in the Middle East. Grain and soft markets were broadly higher as corn surged by over 5.7% while sugar and cotton both added more than 3.5% in the session. The one exception to this commodity surge was in the cocoa markets where prices declined significantly both in the U.S. and London as rumors spread that the embattled leader of the Ivory Coast– the world’s top producer of the crop– announced that he may be willing to step aside.
One of the biggest ETF winners on the day was the iShares MSCI Japan Index Fund (EWJ) which surged higher by 3.1% in Friday trading. Traders scoured the Japanese market for bargains in light of the last week’s disaster, buying up a variety of firms on news that the radiation threat might be greatly exaggerated. “To put radiation doses into context, many Japanese undergo CT scans for cancer screening purposes, and these scans produce radiation doses of about 10 millisieverts (10,000 microsieverts) — much more than they are receiving from the Fukushima reactors.” said Dr. Richard Wakeford, visiting professor of epidemiology at the Dalton Nuclear Institute at University of Manchester in Britain. This news, as well as speculation that winds may have shifted away from Tokyo blowing any residue out to sea, allowed many investors to buy up EWJ heading into the weekend. Sentiment was also boosted by news that the rest of the G7 conducted a joint currency intervention, the first in more than a decade, in order to weaken the yen on the global markets. This program looks to make Japanese exports cheaper and could be another catalyst for EWJ heading into next week [see charts of EWJ here].
One of the biggest losers in the ETF world was the iShares FTSE/Xinhua China 25 Index Fund (FXI) which declined modestly by 0.8% to close out the week. Today’s losses were largely the result of yet another increase for Chinese bank reserve requirements, which look to help slow down the rate of loan growth and prevent inflation from accelerating too rapidly. Today’s hike was for 50 basis points and was the third such raise this year, bumping the ratio up to a record 20%. “It’s clear evidence that tightening is still on,” said Stephen Green, an economist with Standard Chartered in Shanghai. “An interest rate rise in these circumstances (following the earthquake) is difficult, but it looks like they’re dealing with liquidity again.” This news was somewhat of a surprise given the quake in Japan and as a result it helped to push investors out of FXI to close out the week [see holdings of FXI here].
Disclosure: No positions at time of writing.