In yet another session plagued by European doubts, American equity markets slumped in Wednesday’s trading as more worries over a Greek default hit markets. The Dow finished the session down about 1.6% while the broader indexes saw worse days as the S&P 500 and the Nasdaq fell by 2.1% and 2.2%, respectively. These heavy losses came in pretty much every sector although some names in the tech and services space did perform better than most, led by Amazon which gained close to 2.5% on news of its Kindle Fire product. In commodity markets, weakness was in the key products of oil and gold as these two commodities declined by 2.4% and 4.3%, respectively. This led to losses in a variety of other resources as well as all of the softs and energy finished the day in the red, capped by 3% losses in both Kansas City wheat and soybeans.
In currency trading, the dollar strentghened marginally against most of its counterparts, gaining against the European currencies across the board. One percent moves to the upside were also seen in the trade with the Aussie dollar and the loonie as these resource-based currencies suffered along with commodities on the day. In fact, one of the few currencies to gain against the dollar was the yen, as the Japanese currency gained about 0.3% against the greenback in the today’s session. Despite this push back into less risky assets, investors did see Treasury bill yields rise across the board as the Two Year gained about 0.02% and the 10 year added three basis points to finish the day with a 2.0% yield.
One of the biggest winners in the ETFdb 60 today was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which surged by 6.5% in Wednesday trading. Today’s gains, which came on extremely light volume of just 21 million shares, roughly half the trailing three month average, were largely due to more worries in Europe and concerns over how to proceed given the high debt loads that many countries are facing. Traders mostly focused on comments from German Chancellor Angela Merkel which suggested that the second Greek bailout package may have to be renegotiated. Some want banks to take losses on their Greek sovereign bonds, while others, notably France and the ECB, oppose the idea and reject the call for writedowns. Given the stiff opposition to both sides of the plan, the way forward remains uncertain, pushing many investors into this ETN representation of the ‘fear index’ as a way to survive the storm [see charts of VXX here].
One of the biggest losers on the day was the DB Base Metals Fund (DBB) from PowerShares which lost close to 4.3% in the session. These heavy losses were likely spurred by lower demand for commodities across the board and the move to safe assets such as dollars. It also didn’t help that many of the base metals in this fund are heavily tied to economic production so fears of a slowdown weighed heavily on DBB as well. In fact, the fund’s main components, aluminum, zinc, and copper, finished the day sharply in the red adding to recent losses for this product. While the aluminum holdings only saw losses of about 2%, heavier losses were seen in the other products as zinc fell by about 3.5% and copper plunged by an incredible 7.4% on the day. This heavy loss in copper pushed prices of the red metal down about 25 cents a pound, close to the $3.18 mark for the day. “Clearly, the global economy is slowing after several years of sovereign support, which will not be available the second time around,” analysts at RBC Capital Markets led by Randy North in New York wrote in a report today. Thanks to this sentiment, it was a very rough day for the sensitive base metal sector, leading DBB to one of the biggest loses in the commodity space on the day [see more on DBB's Fact Sheet].
Disclosure: No positions at time of writing.