As Draghi delivered, markets took cue, surging to pre-recession highs in one of the most active and momentum-filled days in this dreadfully slow summer slump. During the highly anticipated ECB meeting this morning, the central banked detailed its most aggressive plan to date to deal with the region’s mounting debt crisis. The newly unveiled bond-buying program entails the central bank purchasing short-maturity government bonds to keep borrowing costs down for Spain, Italy, and other indebted countries. The new approach is to be a “fully effective backstop” against market volatility and is promised to be open-ended, but yet conditions have been firmly placed on the program. Draghi indicated that these struggling countries must themselves ask for help and must accept the related conditions, he cites that “It’s in the hand of the government of Spain, and the governments of the euro area.” Whether or not these conditions will hinder the program’s effectiveness or help the currency bloc regain its economic footing will likely not be known till much further down the road. Regardless of the potential risks involved, investors breathed a sigh of relief and jumped full force back into the markets [see also September Edition of ETF Edge Now Available].
Bolstering today’s rally was a trio of domestic economic readings that topped analysts’ expectations. The Institute of Supply Management reported that service-sector activity for the month of August increased from July. Private-sector jobs growth also came in better than expected, while initial jobless claims during the latest week were reported at 365,00 versus the expected 377,000. Despite the positive news on the homefront, market watchers caution that the U.S. is still not out of the woods and many turn to Ben Bernanke and company to see if they will make a bold move similar to their European counterparts.
Pushing to record-breaking highs, all three major stock indexes closed well into positive territory. The S&P 500 (SPY) surged 2.0%, led by advances in material and financial stocks. Tech-heavy Nasdaq (QQQ) closed up 2.1%, flirting with its highest close since 2000. The Dow Jones Industrial Average (DIA) added more than 200 points, gaining 1.7% on the day. In Europe, the euphoria pushed markets skyward with even the equities from debt-ridden Spain and Italy posting large gains during the session. In Asia, equities rose ahead of the ECB meeting; China’s Shanghai Composite rose 0.7% and Japan’s Nikkei Stock Average gained less than 0.1%.
Bond ETF Roundup
Not surprisingly, U.S. Treasuries tumbled after better-than-expected U.S. economic data and the ECB unveiling of the new bond-buying program. Renewed confidence had investors pouring out of the safe haven asset, sending yields up by the most since mid-August. Italian and Spanish bonds, which are thought to be the most effected by the ECB purchases, rallied. Meanwhile, junk bonds ticked higher as investors shifted assets into this riskier corner of the market.
Commodity ETF Roundup
Precious metals rose today with gold climbing to its highest prices in almost six months. Following the ECB meeting, the gold futures contracts for December delivery rose 0.7% to settle at $1,705.60 a troy ounce, its highest settlement price since March. Meanwhile a report showing a steep drop in U.S. oil inventories was seemingly shrugged off as oil prices ended slightly higher.
ETF Chart Of The Day #1: EWP
The iShares MSCI Spain Index Fund (EWP) was one of the best performers of the day, gaining a whopping 5.78% during the session. Following the ECB meeting and the announcement of the new aggressive bond-buying program, Spanish equities skyrocketed, forcing this ETF gap significantly higher at the open. EWP ticked higher throughout the day, eventually settling just below its high of $27.92 a share [see the best performing ETFs in 2012].
ETF Chart Of The Day #2: MXI
The iShares S&P Global Materials Sector Index Fund (MXI) also delivered a strong performance today, gaining 2.92% during the session. Material stocks, which are often tied to global economic growth, rallied today after the ECB’s announcement. In response, this ETF gapped significantly higher at the open. MXI pushed higher throughout the session, eventually settling below its high of $57.16 a share [find ETFs for every investment objective with the ETF Screener].
ETF Fun Fact Of The Day
Follow me on Twitter @DPylypczak
Disclosure: No positions at time of writing.