In a strange trading session, U.S. equity markets surged out of the gate only to stumble in the final hour of trading as investors returned to reality and realized that little progress had actually been made in the European debt crisis. Nevertheless, broad benchmarks did manage to finish in the green as the Dow rose by 1.3%, the Nadsaq gained 1.2% and the broad S&P 500 added about 1.1% for the day. In terms of sectors, basic materials rose alone with consumer and health care firms, while services, banks, and tech were more mixed for the session. In commodity markets, most products rose, led by strong gains in the headline commodities as gold gained 3.8% and oil tacked on 4.2% to finish just above the $83.60/bbl. level. Meanwhile, silver and copper recovered nicely from yesterday’s swoon as the red metal added about 3.8% and silver gained close to 6.7% in the session to finish the day just below the $32/oz. mark.
These strong gains in commodities were largely helped for a broad demand for risky assets and a declining value in the U.S. dollar. The greenback, as represented by the U.S. Dollar Index, saw its value fall by about $0.33 down to the $77.75 level against a basket of global currencies. Losses were had against the euro and pound in the neighborhood of about half a percent although the dollar did manage to strengthen modestly against the yen, pushing its value close to the 77 mark against the Japanese currency. Unsurprisingly given the broad move away from safe assets, traders also rushed for the exits in Treasury bonds, causing yields to rise across most maturity levels and pushing the ten year back near the 2.0% mark.
One of the biggest ETF winners on the day was the iShares FTSE China 25 Index Fund (FXI) which added just under 5.1% in the session. Today’s gains came as traders resumed their purchases of emerging markets, helping to bid up prices after last week’s disastrous stretch of trading sessions. In fact, in American trading of Chinese firms, gains were pretty widespread as oil firms SNP and CEO both added more than 3% on the day while BIDU gained 4.2% and YZC added close to 6.5% in comparison. In addition to greater demand for risky assets, traders also bought up shares thanks to declining worries over the European debt situation, as investors breathed a sigh of relief that this euro zone problem wouldn’t spill over into emerging markets, at least for the time being [see holdings of FXI here].
One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which lost about 2% in Tuesday trading. Today’s slump was largely due to more hopes of a greatly expanded bailout program for Europe, possibly with enough firepower to backstop even the largest of economies that could face trouble in the coming months. Additionally, investors cheered the result of a key vote in Greece to hike property taxes, as this measure suggested that the country was willing to push through unpopular measures in order to receive more funding and stay in the euro zone. Lastly, investors also were glad to hear Merkel say that she was confident that her country would vote for an expanded EFSF on Thursday, further helping to ease tensions in the region. Thanks to these declining worries, investors scooped up shares across the board and sought riskier assets, trends that made investment in the ETN representation of the ‘fear index’ very unpopular in today’s session [see charts of VXX here].
Disclosure: No positions at time of writing.