ETFs React To Saudi Unrest

March 10th at 2:00pm by Tom Lydon

ETFs closed with broad, steep losses Thursday after rumblings of unrest in Saudi Arabia compounded economic worries abroad and in the U.S.

  • Crude-oil futures settled below $103 a barrel Thursday in their third straight losing session as a steep drop in U.S. stocks, a stronger dollar, and a surprise February trade deficit in China spurred concerns of a slowdown in energy demand. Oil came off its lows after reports that Saudi police had opened fire at protesters on the eve of planned demonstrations for democratic reforms. Traders also continued to monitor the fighting in Libya between rebels and forces loyal to Col. Moammar Gadhafi, who has ruled the African nation for 42 years. The ProShares UltraShort Oil & Gas ETF (NYSEArca: DUG) closed over 7% higher on Thursday.
  • The U.S. government posted a budget deficit of $222.5 billion in February, the largest monthly deficit on record, the Treasury Department reported Thursday. The government spent about $333 billion in the month and took in about $110 billion. Several factors contributed to the record deficit. Compared to February 2010, corporate tax receipts were 69% lower in February 2011. On the spending side, the U.S. spent 29% more than a year ago paying interest on the U.S. debt. The White House expects the U.S. budget deficit to hit $1.6 trillion this year before falling to $1.1 trillion in 2012. Meanwhile, Treasury Secretary Timothy Geithner is warning that the U.S. will hit its $14.3 trillion borrowing limit as early as April 15.
  • Gold futures retreated more than 1% Thursday, giving back the previous session’s paltry gains and then some as the dollar traded higher and other commodities such as oil headed lower.  “It’s the long-awaited turn in global growth, which takes risk off the table. There’s the possibility that the China story has peaked, which in general is bearish for gold,” said James Cordier, president and head trader at Liberty Trading Group in Florida. “A correction is well overdue, but the technical’s and fundamentals would suggest that any sell off may again be short and shallow,” analysts at Goldcore said in a note to clients. The Market Vectors Gold Miners ETF (NYSEArca: GDX) finished down approx. 3.5% today.
  • Treasury prices extended gains on Thursday, pushing 10-year yields down to the lowest in more than five weeks; following news reports that police had fired on a rally in Saudi Arabia.  Investors have shifted into U.S. bonds out of riskier assets in recent weeks as continuing turmoil in the Middle East creates uncertainty and rising oil prices threatens to slow the economy’s growth. Trade data from the U.S. and China, a downgrade of Spain’s government debt and a big drop in U.S. stocks also pointed to doubts about the sustainability of the global economic recovery, increasing the appeal of U.S. debt. The Direxion Daily 7-10 Year Treasury Bull 3x Shares ETF (NYSEArca: TYD) gained 2.5% on Thursday.

Gregory A. Clay contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.