U.S. equity markets continued their slump to end the week markedly lower as the Dow and S&P 500 both plunged while the Nasdaq managed to squeeze by with a gain of 0.04%. Commodity markets also showed weakness as oil and gold both fell with oil losing nearly $1/bbl. in today’s trading session. Today’s modest losses came after investors grew increasingly bearish over the long-term health of the U.S. economy given the negative unemployment data and the uncertainty over policy moves ahead of the mid-term election in November. “We’re probably on a continuation from yesterday’s disturbing claims number,” said Paul Zemsky, head of asset allocation at ING Investment Management. “There’s really nothing to hang your hat on.”
One of the day’s biggest losers was the Energy Select Sector SPDR (NYSEARCA:XLE) which fell by 1.2%. Friday’s losses were largely a result of a stronger dollar and continued concerns over oil demand given the weakness in developed market nations. This loss marks a terrible two week stretch for oil prices which have seen their prices fall by nearly 8.5% in that time period and close to $15 below their 52-week high in May of $87/bbl. Large oil supply levels also helped to push down prices, leading to a sell-off in XLE which has seen its price fall by almost 6.2% in the past two weeks. “We took out our recent lows because of more bad U.S. economic news,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “Inventories are at 20-year highs, and the prospects for demand growth are fading. Prices are still too high given the fundamentals.” [see holdings of XLE here]
One of the biggest gainers in the ETFdb 60 was the PowerShares DB US Dollar Index (NYSEARCA:UUP) which jumped higher by 0.7% on the day. Today’s rise was thanks in large part to the general strength of the U.S. dollar against the major currencies of the world as global investors sought less risky assets. The euro fell by over 1 cent against the dollar while the Canadian dollar weakened against the greenback as well, pushing that exchange rate close to the $1.05 mark, a huge change from its sub $1.03 level earlier this week. This weakness in key U.S. trading partners came after dovish comments from the German central bank president who said that the European Central Bank should continue its generous provision of liquidity through the end of the year while the ‘loonie’ slid on weaker than expected inflation readings which came in at an annualized rate of just 1.8% [see technical analysis of UUP here].
Disclosure: No positions at time of writing.