Today saw markets start the holiday-shortened week on an extremely rocky note as shares plunged to start the session thanks to European debt woes. The Dow, which at one point in the day was below the 11,000 mark, finished the day down jst 101 points thanks to a late session surge while the S&P 500 and the Nasdaq performed similarly, ending Tuesday trading down 0.7% and 0.3%, respectively. In commodity markets, trading was equally rocky as gold slipped by one dollar and oil fell by just a cent, clawing back the vast majority of its losses for the day. Thanks to more questions about the health of the euro as well as the viability of the franc as a safe haven instrument, investors piled into greenbacks, sending the U.S. dollar index up sharply higher on the day. This helped to push more investors into Treasury debt, sending longer term yields, such as those for 10 year notes, below the 2.0% mark.
One of the biggest ETF winners on the day was the PowerShares DB USD Index Bullish Fund (UUP) which gained close to 1.6% in Tuesday trading. Today’s gains were largely due to further weakness in the euro and a collapse in prices for the franc after that country’s central bank announced a peg of the franc to the euro for the foreseeable future. The SNB promised to buy foreign currencies ‘in unlimited amounts’ to defend the peg, suggesting that the central bank is committed to the task of keeping the franc below the 1.20 level against the euro. Thanks to this news, investors fled francs and other European currencies, piling into dollars as the medium of choice, sending UUP sharply higher for the day [see more on UUP's Fact Sheet].
One of the biggest losers on the day was the Vanguard European ETF (VGK) which sank by 4.4% in the session. Today’s losses were largely due to more worries over sovereign debt across the continent as banking shares led to the downside in Tuesday trading. Double digit losses were seen in many banking institutions across the region including a 12.7% loss for RBS, and nearly 10% declines in shares of ING, UBS and Credit Suisse as well. These declines surfaced after more concerns over the political will in PIIGS nations to reduce budget deficits, especially in Italy in Greece. In fact, in the Greek bond market, one year bonds are approaching yields of nearly 90%, suggesting that a more complete resolution to the crisis is coming one way or another in the very near future [see holdings of VGK here].
Disclosure: Long VGK.