American equity markets slumped to start the week as fresh concerns over a possible Greek default shook investor confidence once again. The Dow finished the day down just over 100 points while the S&P 500 fell by 1% and the Nasdaq beat the other two indexes, slumping by 0.4% in the session. Losses were especially bad in the financial and basic materials sectors while tech was more mixed and utilities held up strongly as well. In commodity markets, the headliners of gold and oil both fell on the day as gold sank by 1.7% and oil declined by over $2/bbl. finishing the day just under the $85.80 mark. Other commodities also experienced broad weakness as most of the softs finished lower, industrial metals declined, and energy products, save for natural gas, finished in the red as well.
In currency trading, the U.S. dollar strengthened broadly against many of its rivals, gaining against the euro and pound and surging against the Aussie dollar. On the downside, losses were mostly contained to the yen trade as that currency gained against the dollar once again, pushing it down to 76.55 yen per dollar to close the day. Thanks to this move to dollars and a resurfacing worry over Greece, investors bought up bonds across most maturity levels, causing two year notes to fall to a 0.17% yield and 10 Year notes to slump down to the 1.96% level, a 10 basis point loss since Friday’s close.
One of the biggest ETF winners on the day was iPath S&P 500 VIX Short-Term Futures ETN (VXX) which rose by 3.4% to start the week. Today’s gains, which came on light volume that was roughly 50% of the three month average, were largely the result of more worries over Greece and their precarious budget situation. Northern European euro zone members appear to be at their breaking point when it comes to how much they are willing to bail out their Southern neighbors, especially given Greek foot-dragging when it comes to implementing cost saving reforms. As a result, fears of a delay in another much-needed tranche of funding, which could push the country into default, weighed on the markets once again today. Thanks to this fear, investors piled into this ETN representation of the ‘fear index’ causing VXX to surge and recoup much of its losses from last week’s rough period [see charts of VXX here].
One of the biggest ETF losers in the session was the iShares FTSE China 25 Index Fund (FXI) which fell by 3.3% to open up the week. Today’s losses were the result of more worries over tightened monetary policies and concerns of a liquidity crunch as well. The prospect of more strict monetary policies seem to be very likely given the comments from Premier Wen over the weekend in which he stated that he was ‘concerned’ about high prices and that the government will continue to try to reel in these increases in the near future. Furthermore, some investors are worried that an IPO by Sinohydro later this week could push cash out of other infrastructure stocks and markets in general, possibly causing Monday’s slump. “The upcoming big IPOs are a major reason for the market plunge, draining liquidity in the market,” said Tu Jun, a strategist at Shanghai Securities Co. “It’s not a good time for fund-raising but the government’s tight monetary policy has left companies with no other choice.” Thanks to this, FXI was one of the biggest losers on the day, erasing much of last week’s gains to start this important stretch [see holdings of FXI here].
Disclosure: No positions at time of writing.