U.S. equity markets continued their slide in Monday trading as banking stocks led the losers on the downside. The Dow fell by 0.5% in the session, turning in a far better performance than the Nasdaq and the S&P 500 which both slumped by 1.1% on the day. Commodities also experienced weakness in Monday’s session as gold fell by about three dollars an ounce and oil sank below the $100/bbl. level to finish just below the $98.80 mark. Most other commodities experienced modest selling on the day as well, as the grain and softs faced losses exceeding 2% in most cases. This was largely due to dollar buying as the U.S. dollar index rose above the $74 level to finish the day up by 0.3% thanks to gains against the euro, pound, and Aussie dollar. Despite this move to dollars, T-Bill trading was flat on the day as the two year remained unchanged and the 10-year rose by one basis point to the 3.00% yield level.
One of the biggest winners on the day was the United States Natural Gas Fund (UNG) which gained 2.5% to open the week. UNG surged thanks to another forecast of warm weather, a scenario that could potentially boost demand for natural gas which is a popular fuel for power plants. Temperatures are excepted to be above 90 degrees across much of the nation, from Houston to Chicago, and all the way across the Midwest to New York, potentially putting a huge strain on power plants which could force them to tap into natural gas in order to meet the rising demand for electricity. “This market continues to key primarily off of warm weather forecasts,” said Jim Ritterbusch, president of energy advisory firm Ritterbusch & Associates, in a note to clients. Additionally, traders also kept an eye on the Caribbean as the National Hurricane Center now predicts that there is a 50% of a tropical cyclone forming during the next two days. Should the storm develop into something powerful and head towards the Gulf coast, UNG could continue its rise and establish a new three month high [see fundamentals of UNG here].
One of the biggest losers in the ETFdb 60 was the Market Vectors Gold Miners ETF (GDX), which sank by close to 3.0% in Monday trading. Today’s losses in the gold mining sector came as the U.S. dollar strengthened marginally against most of the world’s major currencies. When this happens, it has a two-fold impact on GDX that can cause the price of the fund to sink much further than the actual metal. When the dollar strengthens, it generally represents a flight to quality or continued worries over other regional markets, such as Europe, pushing down demand for the yellow metal. Additionally, since the vast majority of the stocks in the underlying index are foreign companies, dollar strength also lowers the appeal of these firms from a U.S. perspective as the value of their profits will decrease when changed into greenbacks. As a result, GDX tumbled significantly in Monday trading, continuing the recent trend for the fund that has lost close to 9.2% over the last quarter alone [see holdings of GDX here].
Disclosure: No positions at time of writing.