U.S. equity markets started the week on a strong note, as investors cheered a French proposal to help debt-stricken Greece from further chaos. The Dow and the S&P 500 both finished the day up by about 0.9% while the Nasdaq surged by 1.3% in the session, led by strong performances out of Apple, Google, and a nearly 4% surge from Microsoft. Commodity markets were more mixed on the day as gold and oil both sank marginally, pushing gold below the $1,500/oz. level and oil below the $91 mark. Yet most other energy commodities finished the day ahead, including a 1.3% gain for RBOB futures, and a 1.3% for Brent crude. Grains continued their recent stretch of weakness, however, and some softs, namely cocoa did manage to start the week off on a strong note despite a lack of strength in the rest of the market. In Treasurys, there was some modest outflows for most levels of U.S. debt as risk aversion declined to start the week. The Ten Year note saw yields rise by about five basis points while the Two Year saw its yields rise by six basis points to the 0.4% mark.
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures Fund (VXX) which tumbled by 1.5% to start the week. Today’s losses in this ETN representation of the ‘fear index’ came as French President Nicolas Sarkozy voiced his support for a French bank plan to extend the maturity of Greek bonds held on their books. The proposal calls for half the proceeds from maturing bonds to be reinvested in 30 year Greek debt while 20% of the maturing funds would be devoted to high-quality assets as insurance. Investors generally embraced the plan despite its risks and the significant credit and interest rate risks that the French banks would be taking on, pushing down demand for safe havens across the board. T-bills, gold, and VXX were all down on the day, further underscoring how this proposal limited demand for safe assets to start this important week [see more on VXX's fact sheet].
One of the biggest losers in the ETFdb 60 was the iShares FTSE China 25 Index Fund (FXI) which gained 1.7% on the day. The fund rose thanks to continued predictions of more mild inflation in the months ahead, helping to boost companies tied to natural resources and finance in particular. Companies also rose on optimistic reports from financial institutions Citic and CICC, which both called for a rally in stocks in the second half of the year, betting that inflation would peak and that the Chinese government would resume credit expansion in earnest to increase economic growth. Additionally, China was boosted by reports of a deal being struck with the UK that could be worth up to $2.3 billion, further helping to boost trade between the two important nations. “The domestic economy is in a good shape and a hard landing is unlikely,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Stocks are pretty cheap.” [see holdings of FXI here]
Disclosure: No positions at time of writing.