U.S. indexes finished Tuesday markedly higher as solid economic data reports helped to carry the day for American equities. “The retail number, which was lousy, was better than expected, and Best Buy’s earnings are a strong indication that second-quarter profits will be pretty good,” said Jack Ablin, chief investment officer at Harris Private Bank. This led to a 1% gain for the Dow, which retook the 12,000 mark, a 1.3% surge in the S&P 500 and a 1.5% jump in the tech-heavy Nasdaq which was boosted by strength in the semiconductor market segment. Commodities followed the lead set by stocks as gold and silver both moved to the upside, while most energy products recouped their losses from yesterday, as WTI rose by 1.9% up to the $99.1/bbl. level. However, while the day was pretty solid for equities and commodity markets, bonds suffered as investors moved to risky assets across the board on Tuesday. The Two-Year saw yields rise by 0.04% up to the 0.45% mark, while the 10-Year experienced an 11 basis point jump in yields, a move that represents a 3.7% gain for yields in this benchmark.
One of the biggest ETF winners on the day was the PowerShares DB Base Metals Fund (DBB) which gained close to 2.3% in Tuesday trading. Today’s gains the base metals came as traders cheered the latest Chinese industrial production data which showed that output in May was slightly higher than in the year-ago period. Economists had expected a 13.2% increase for the month but actual data showed a 13.3% jump, helping to offset yet another reserve ratio hike by China, this time a 50 basis point hike. So despite the sixth increase in reserve ratio requirements so far this year, base metals performed very well during today’s session led by copper which rose by over 3% on the day. “You look at low (Chinese) inventory levels and today’s steady industrial demand, chances are the import numbers into China in the future might be healthier,” said Bart Melek, head of commodity strategy at TD Securities. “I suspect the market is seeing a bit more physical buying in China.” Copper futures make up roughly one-third of the total of DBB so their gain helped to offset weaker performances in the zinc and aluminum markets during today’s trading, carrying DBB to a solid performance in the session [see more on DBB's fact sheet].
One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which sank by 3.1% on the day. Today’s losses came as traders again embraced risky assets for the time being, limiting demand for this ETN representation of the ‘fear index’. The main catalysts for this move were retail sales that came in above expectations for the month of May as well as a stable PPI which suggested to many that inflation would not be accelerating any time soon. This move helped to increase demand for risky equities and limited interest in VXX which is traditionally seen as a quality hedge against market turmoil. Volume was slightly above average on the day– 19.8 million shares traded compared to an average of 19.1 million– and helped to reverse the short-term in the fund. Over the past two weeks, VXX has been up 5.9% thanks to an increasingly uncertain market, but thanks to today’s losses, the fund could once again resume its long-term trend downwards, assuming that the market remains stable and that key data later this week doesn’t disappoint investors [see more on VXX's fact sheet].
Disclosure: No positions at time of writing.