American equity markets slid to start the week as concerns over a debt ceiling deal hung over stocks throughout the day. The Dow and the S&P 500 both finished the day lower by 0.8% while the Nasdaq fell by 0.9% in comparison, although all three benchmarks did come off their lows to finish the session. Commodity markets trended downwards for the most part as softs and energy commodities slumped on demand fears as crude oil fell by about 1.3% down to just below the $96/bbl. level. Strength was again seen in the safe haven commodities, however, as gold gained about 1% and silver added just under 3.8% to its total to finish the day above the $40.50/oz. mark. Treasury markets were mostly flat in comparison as the Ten and Two year both saw yields rise by 0.01 on the day as the dollar did manage to post a gain against most of its major rivals, likely due to rising bond yields (and fears) across much of Europe.
One of the biggest ETF winners on the day was the Market Vectors Gold Miners ETF (GDX) which gained 1.4% to open up the week. Today’s gains were largely the result of gold’s surge thanks to its broad appeal as a safe haven, especially considering how unappealing Treasury bonds have become in comparison. Discussions over a debt-ceiling deal are still at a standstill and recent reports suggest that a backup plan is not in-place isn’t helping to placate investors either. “It looks like more partisan fighting is delaying any debt-ceiling resolution,” Larry Peruzzi, senior equity trader at Cabrera Capital Markets Inc. in Boston, wrote to Bloomberg. “Words being thrown around like ‘catastrophe and Armageddon’ are certainly not soothing investors’ confidence.” While the events may not have soothed equity investors, gold traders have taken the news in-stride, pushing the precious metal up past the key $1,600/oz. level and to a fresh record. As a result, demand for the popular gold ETF, GDX, surged again in today’s trading session, putting the fund up 11.1% over the past two weeks alone [see fundamentals of GDX here].
One of the biggest losers in the ETF world to start the week was the Vanguard MSCI Europe ETF (VGK) which slumped by 2.0% on the day. Today’s losses came as eight banks failed stress tests and several EU members suggested that solidarity with highly indebted nations has begun to fade, sparking more fears of a debt contagion spreading from nations such as Greece to the trillion dollar economies of Spain and Italy. As a result, both Spanish and Italian government debt saw yields spike above the 4.5% level while Greece saw its two year debt trade just below the 36%. Meanwhile, ten year bonds for both Italy and Spain rose by about 4% adding roughly 20 basis points each to their current yields. Thanks to these spiking costs for bonds, investors once again sold-off the most popular European ETF on heavy volume that was roughly three times normal. This also pushed VGK down to a 5.6% loss over the past week and a 6.1% slump over the past two weeks alone, demonstrating just how significant of an impact the crisis is having on the region [see charts of VGK here].
Disclosure: No positions at time of writing.