Equity exchange traded funds (ETFs) closed lower for a third consecutive day on Wednesday as weaker-than-expected economic data and more losses in top-performing commodity sectors cast doubt on how much life is left in the current market rally.
- The dollar fell to an 18-month low against the Euro Wednesday, the day before the European Central Bank meets to set interest rates. Analysts don’t expect the central bank to raise rates Thursday, but investors will be watching European Central Bank President Jean-Claude Trichet’s news conferences for clues about when the next rate hike will be. Analysts expect two more rate hikes this year, but when they will happen is uncertain. Last month, the European Central Bank raised its refinancing rate to 1.25 percent from 1 percent. Chris Walker, a currency strategist at UBS said in a research note that two more rate hikes are expected “to come sooner — in July and October,” instead of later in the year, as previously thought. Central banks raise interest rates to curb inflation. Higher rates also tend to increase demand for the currency linked to that country or region. The CurrencyShares Euro Trust ETF (NYSEArca: FXE) ended flat on Wednesday.
- Treasury prices rose Wednesday, pushing 10-year yields down to the lowest level in almost seven weeks, after softer-than-expected data on private hiring and the services sector of the U.S. economy. Yields on 10-year notes, which move inversely to prices, fell 3 basis points to 3.23%, having touched their lowest since mid-March. A basis point is 1/100th of a percent. Yields on 2-year notes decreased 2 basis points to 0.59%, also the lowest since mid-March. Thirty-year bond yields fell 2 basis points to 4.33%, the lowest level since December. “This week, the sentiment of the market is one of economic concern — concern that we continue to receive only muted job growth or worse,” said strategists at RBS Securities in a note. “This shift follows the market’s recognition of the current slowdown in first-quarter GDP (which helped take yields from 3.60% to here), and worries that the second quarter will not show the re-acceleration of growth we are looking for.” The iShares Barclays 20+ Year Treasury Bond ETF (NYSEArca: TLT) closed slightly higher today.
- Oil dropped below $110 per barrel Wednesday after a government report showed that supplies of petroleum products are growing as demand weakens in the U.S. Industry reports on the job market and the service sector also raised concerns about the health of the U.S. economy. Prices fell shortly after the Energy Information Administration said that oil supplies increased by 3.4 million barrels last week — twice as much as energy analysts expected. The government also reported that gasoline demand averaged 9.1 million barrels per day, down almost 2 percent from a year ago. Crude has been climbing over the past few months as unrest in North Africa and the Middle East raised concerns about oil supplies and a weaker U.S. dollar made crude cheaper for investors holding foreign money. Still, economists warned that higher energy prices were taking a toll on the economy, and recent government and industry surveys suggest that American drivers are buying less fuel. Investors can play the bearish trend with the ProShares UltraShort Oil & Gas ETF (NYSEArca: DUG) ended approx. 3.5% higher on Wednesday.
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. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.