American equity markets finished solidly in the green in Wednesday trading as stocks mostly drifted higher on low volume, led by solid gains in the blue chips in the tech and consumer goods sectors. The Dow rose by close to 0.5% on the day leading the broader indexes, the Nasdaq and the S&P 500, which gained just 0.3% and 0.1%, respectively. Commodity markets were more mixed in today’s session than they started the week, as gold rose by about 1.1% and oil slid back by about twenty cents a barrel. Softs also faced more resistance as cocoa and cotton both fell by over 1.2%, but rice and orange juice managed to gain more than one percent on the day. Meanwhile, the U.S. dollar made strong gains against many of the major currencies of the world as traders fretted over a downgrade of Portuguese debt, pushing the value of the euro down by over one cent against the greenback in Wednesday trading, ahead of tomorrow’s key ECB meeting in Frankfurt.
One of the biggest ETF winners on the day was the Market Vectors Gold Miners ETF (GDX) which gained 1.3% in today’s trading. These gains came thanks to more worries about sovereign debt in Europe, this time from the highly indebted nation of Portugal. The country saw yields on its ten year Treasury debt spike to over 13% on news that Moody’s had downgraded the country to ‘junk’ status, sparking fears of a contagion spreading to the Iberian peninsula. This boosted demand for gold as a safe haven, especially with the ongoing worries over American debt, increasing the appeal of firms like those found in GDX as a hedge against further turmoil. “You’re getting a flight-to-quality fear coming in for gold,” said Adam Klopfenstein, a senior market strategist at broker Lind-Waldock in Chicago. “With the anxieties in Portugal and the ongoing debt-ceiling problems in the U.S., there are too many bullish cases for gold.” [see charts of GDX here].
One of the biggest ETF losers in Wednesday’s session was the iShares FTSE China Index Fund (FXI) which slumped by 1.3% on the day. These losses were the result of a move by the People’s Back of China to increase lending and deposit rates by a quarter percentage point, the third increase so far this year. Now, the one year lending rate will be at 6.56% while the counterpart rate for deposits will be at 3.5%. Many traders took this as a sign that inflation in the country still is not under control and that further measures have to be taken in order to achieve price stability, potentially slicing into growth in the medium term. Thanks to this, FXI experienced more selling in today’s trading session, putting the fund down 7.8% over the past quarter alone, showing just how much the concerns over inflation have been rocking large cap China equities as of late [see holdings of FXI here].
Disclosure: No positions at time of writing.