As investors became worried ahead of a key meeting this week in Brussels (rightfully so), and after reports of Greek Finance Minister resigning on health grounds just four days into his job hit the wires, US equities plummeted more than one percent Monday.
Moods were soured further after Cyprus became the fifth nation in the single-currency union to seek money from the region’s lifeboat funds to prop up its struggling banks, citing massive losses from Greek debts.
US Treasuries advanced over news that German Chancellor Angela Markel has turned down proposals for joint euro-area wide bonds and deposit insurance schemes, terming them incorrect and counterproductive. Ms. Merkel argued in favor of a political union and called for stronger oversight mechanism instead, pouring cold water on Spain, Italy and France’s for an early solution to reign-in spiraling borrowing costs.
The Dow Jones Industrial Average (DJIA) tumbled 138.12 points, its third day of losses in the last four. Among the Dow’s 30 components, 29 ended the day lower.
The S&P 500 Index (SPX) shed 21.30 points with technology faring the worst among its 10 business group.
US government papers gained with the benchmark Treasury and bonds extending gains for the quarter as risk appetite diminished. As prices rose on safe-haven demand, yield on 10-year notes dropped seven basis points to 1.61 percent in late afternoon trading, New York time.
Despite sales of new US homes coming in stronger than anticipated in May at an annualized rate of 369,000 against the forecasted 350,000, yield on 30-year bonds dropped eight basis points to 2.68 percent.
ETFs in the news:
After Egypt announced the results of its first elections, Van Eck Market Vectors Egypt Index ETF (EGPT) soared, vaulting 12.25 percent for the day.
The winning candidate is expected to bring in stability as the African nation makes its transition from military rule to democracy. EGPT invests in companies that are primarily listed in the country’s stock exchanges and derives at least 50 percent of revenues from the domestic market.
As sentiments nosedived today, the so-called fear-tracking CBOE Volatility Index (VIX) jumped 12.53 percent, closing at 20.38. The ProShares VIX Short-Term Futures ETF (VIXY) also rose, adding 8.39 percent for the day.
With the European crisis deepening today ahead of a crucial meeting on Wednesday, EU linked ETFs took a beating. The Global X FTSE Greece 20 ETF (GREK) was among the biggest losers, shedding 7.41 percent for the day. The iShares MSCI Spain Index Fund (EWP) also tumbled, losing 4.97 percent for the day.
Our Trend Tracking Indexes (TTIs) headed south as well, with the Domestic TTI still hovering on the bullish side of the trend line (+1.08%), while the International TTI sank deeper into bear territory, where it sits now at -4.48%.
As you know, oil has been dropping like a rock as global economic data have weakened and the European crisis has worsened. In a way, you can consider oil a leading indicator when charting it against the S&P 500. Take a look at the comparison of USO to the index:
It’s obvious that USO has been leading the way for the S&P 500. Given this current picture, where do you think the S&P is headed?
Disclosure: No holdings
Contact Ulli