Equity markets endured another rocky session as a stronger dollar and concerns over China weighed on stocks across the board. The Dow and the S&P both slipped by just two points while the Nasdaq suffered more widespread losses of 0.8% thanks to weakness in the technology sector. Commodities also suffered heavily on the day as both gold and oil tumbled as the yellow metal fell by $25/oz. and oil sank below the $89.5/bbl. mark. Nevertheless, soft commodities were once again the standouts with cotton, cocoa, and sugar all posting gains on the day despite broad weakness in the metals and energy sectors. Meanwhile, in Treasury markets, yields surged across most maturity levels as investors dumped T-Bonds, pushing rates up to the 3.45% mark for the ten year and 0.63% for the two year note.
At first, U.S. markets were buoyed by reports out of the two most troubled sectors of the market from the recent financial crisis, homebuilders and financials which offered up quality data before the bell. Morgan Stanley rose by more than 4% as the financial giant beat revenue estimates for its most recent quarter, while rumors of a weakened bill targeting caps on debit card fees helped to boost others in the sector as well. Meanwhile, investors also bought up homebuilders and related securities as existing home sales for December surprised on the upside. Growth in existing home sales on a month-over-month basis reached 12.3% while the annualized level of home sales reached 5.28 million, roughly 300,000 units higher than expectations.
Unfortunately, these bullish reports were not enough to counteract growing fears over a Chinese rate hike, which helped to quell any upward moves by the market. These fears, which have been present in the market for a while, resurfaced once Chinese GDP for the fourth quarter was released showing growth of 9.8%, far ahead of many analyst forecasts. This pushed many to believe that China would be forced to act sooner rather than later in order to curb inflation in order to prevent the economy from overheating, sending shares lower across the board in a variety of sectors. “Inflation and the possible responses to it are what’s impacting markets today,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
One of the biggest gainers on the day was the United States Natural Gas Fund (UNG) which surged by 2.6% in Thursday trading. Once again a big mover for the day, natural gas prices were heavily influenced by today’s natural gas storage report which helped to boost prices for the popular heating fuel. Analysts had expected an inventory drawdown of roughly 233 billion cubic feet of the fuel but actual results showed that supplies declined by 243 bcf instead. This helped to push total stockpiles of the fuel down to 2.716 tcf. This significant decrease in available supplies helped to boost prices and rekindle interest in the beaten down fuel pushing UNG to a 12.9% gain in the past month alone [see more fundamentals of UNG here].
One of the biggest losers in the ETFdb 60 was the iPath DJ-UBS Copper TR Sub Index Fund (JJC) which sank by 2.6% on the day. This drop in prices for the red metal can largely be attributed to China’s bustling economy which many feel will have to be hit with a rate hike in order to cool off inflation. Prices increased roughly 4.6% from a year earlier which also further signaled to investors that a rate hike was likely in the cards for the world’s most populous nation. While many commodities were hit by this news, copper was among the most impacted since China consumes roughly 40% of the world’s supplies of the metal, far and away the most for a single nation. “As China goes, so goes commodities,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “Demand is going to come from a lot of different sources, but since the biggest consumption growth is related to China, that remains the focus.” [see more charts of JJC here].
Disclosure: No positions at time of writing.