American equity markets started the Holiday-shortened week mixed, as strength in the natural resource and tech sectors were weighed down by weakness in financials and industrials. The Dow and the S&P 500 both finished the day down 0.1% while the Nasdaq managed to post a 0.4% gain for the session, thanks to a 2.2% from search giant Google. Commodity markets, however, stole the show as weakness in the U.S. dollar propelled many resources sharply higher including a 2.3% gain for gold and a 2% jump in crude oil prices. Softs, grains, and the rest of the metals finished markedly higher as well, largely led by a 3.8% bump in wheat and a nearly 4.9% surge in silver futures. This came as the U.S. dollar lost close to 1.1 cents against the euro and faced weakness against the pound, yen, and Aussie dollar as well. T-Bills did manage to see some inflows despite a weaker greenback as the 10-Year saw yields fall by 0.06% and the 2 Year fell to 0.44%.
One of the biggest ETF winners on the day was the Market Vectors Gold Miners ETF (GDX) which gained 3.1% in Tuesday trading. These sharp gains came thanks to one of gold’s best trading days in more than eight months, as traders bought up the precious metal on a weaker dollar and continued worries over Greek debt. The main issue from Greece now stems from a French plan to roll over Greek debt and how Standard & Poors would view this event. S&P said over the long weekend that the French plan would result in a ‘selective default‘ which could cause problems for the ECB which may not be able to accept Greek government bonds as collateral for loans if Greece is deemed to be in default. As a result of this, many traders bought up precious metals on the day, helping GDX, which is often considered a leveraged play on the underlying metal, to a solid day of trading to start the short week [see charts of GDX here].
One of the biggest ETF losers on the session was the iShares Dow Jones Transportation Average Fund (IYT) which sank by 0.9% to start the week. Today’s losses were largely due to the threat of higher costs for fuel as oil had one of its best days in recent memory, gaining close to $1.9/bbl to finish just below the $96.80 mark. This spike in oil prices came about for a number of reasons, namely optimism over growth and a weaker U.S. dollar. In terms of growth, traders bought up oil on news of increased factory orders for May as well as an expanding services industry in China. These two nations represent the biggest consumers of crude so strength in their economies has helped to boost crude prices to start the week, and could keep oil elevated as well head further into summer, possibly putting further pressure on IYT. “As long as we can see the economy growing, we are going to see more strength in oil,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “Oil may rise to $100 this month.” [see holdings of IYT here]
Disclosure: No positions at time of writing.