U.S. equity markets rose broadly in Wednesday trading as more hopes for an EU bank recapitalization program helped to buoy stocks across the board. The Dow finished the day up by 0.9% on the session while the broader indexes straddled this figure as the Nasdaq gained 0.8% and the S&P 500 added a full one percent on the session. For sectors, utilities and health care saw some weakness while industrial goods and basic materials were more mixed. For winners, financials were clearly the top sector while consumer goods saw a nice boost from a solid report from Pepsi. In commodity markets, the two headline commodities diverged on the session as gold added about 1% while oil slumped about 1.2% to finish just below the $84.80/bbl. level. Other natural resources were also choppy as many of the grains and softs slumped back on the day while coffee, copper, and hogs each added at least 1% for Wednesday.
Currency trading saw further weakness in the greenback as the U.S. dollar index slipped to just below the $77 level on the day. These losses came as the American currency fell about 1.5 cents against the euro and a similar amount against the pound as well. However, the dollar did manage to strengthen modestly against both the yen and the Canadian dollar, suggesting that it wasn’t all bad for the greenback on the day. Meanwhile, in Treasury markets, investors saw further outflows in the mid term securities while some piled into shorter term debt as the two year fell back below the 0.3% mark.
One of the biggest ETF winners on the day was the iShares FTSE China 25 Index Fund (FXI) which gained close to 4.0% in Wednesday trading. Today’s gains came thanks to a report from China that the government was looking to give fresh financial support to many of the nation’s cash-strapped small businesses. Some of the measures included allowing small firms to issue more debt while simultaneously paying less in taxes, a move that could help many get over this rough economic patch. “Currently, some small- and micro- sized firms are facing operating difficulties and the problem is also that they are facing a heavy tax burden and finding it hard to get finance, all of which we need to give high attention to,” said a cabinet statement that was headed by Premier Wen Jiabao. Although some were disappointed that the country didn’t push reserve ratio requirements even lower for smaller banks, the moves nevertheless represent another step by China to help ease the blow of tightened monetary policies and support the markets. As a result, many investors decided to once again buy up Chinese shares across the board, helping to boost the value of FXI sharply higher in the process [see fundamentals of FXI here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG) which lost about 3.2% on the day. Today’s losses came as many traders sold out of their natural gas futures contracts ahead of tomorrow’s key EIA report, fearing a large increase in supplies for the fuel. Analysts are now predicting that the storage buildup could top 100bcf for the week, a huge increase in what has historically been a much better period for the fuel. However, thanks to extremely mild, and downright warm, weather across much of the Midwest and Northeast, many consumers felt no need to turn on the heat this year, helping to keep demand of this vital fuel at a low level. Thanks to this, many traders decided to exit their positions in UNG as well, pushing shares of the billion dollar fund sharply lower ahead of tomorrow’s key report, which looks to either confirm or deny traders’ worst fears over natural gas usage in the previous week [see charts of UNG here].
Disclosure: No positions at time of writing.