Greece Election On Sunday Hangs Heavy Over Stock Markets; FAA Flies, EU Tanks

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[Chart courtesy of MarketWatch.com]

US stocks declined Wednesday as investors remained worried over Sunday’s Greek elections. The situation was compounded further after ratings agency Egan-Jones cut Spain’s government debt to junk Wednesday.

Treasuries advanced to erase yesterday’s gain in yields as markets turned jittery after reports showed a decline in US retail sales in May, spiking demand for safe-haven assets. Reports of increasing withdrawals at Greek banks didn’t ease investor concerns either.

The Dow Jones Industrial Average (DJIA) dropped 77.42 points, with 20 of the 30 components closing lower within the blue-chips index. The S&P 500 Index (SPX) slipped 9.30 points with consumer discretionary declining the among its 10 business groups.

A Commerce Department report showed retail sales declined 0.2 percent in May, pushing Treasures higher. The Producer Price Index, an indicator of whole sale prices, was off one percent for May against a forecast of 0.7 percent. Both developments favor the initiation of a potential Quantitative Easing 3.

The benchmark 10-year Treasury yield declined six basis points to 1.61 percent in late afternoon trade, New York time. Despite adding five basis points in early trade, yield on 30-year bonds dropped five basis points to 2.72 percent.

ETFs in the news:

Airline ETFs remained in focus after reports of a merger between the fifth-largest carrier US Airways Group (LCC) and the third-largest airline AMR Corp (AAMRQ) appeared in the media Tuesday. Quoting sources, Reuters reported LCC plans to file paperwork with US antitrust regulators in July. AMR had filed for bankruptcy protection in Nov.

The Guggenheim Airline ETF (FAA) jumped 2.58 percent at the merger news of LCC and AMR. LCC consists of 3.26 percent of total holdings and the fund has returned 13.52 percent since Jan.

After two consecutive days of decline, the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) advanced today as US equities retreated on lower US retail sales data and Spanish sovereign downgrade.

VXX jumped 5.15 percent for the day while the so-called fear-tracking CBOE Volatility Index (VIX) vaulted 9.87 percent. Other VIX linked products like the ProShares VIX Short-Term Futures ETF (VIXY) also surged, finishing 5.08 percent higher for the day.

The WisdomTree Euro Debt Fund (EU) crashed, losing 3.74 percent as Spain faced sovereign ratings cut from lesser known Egan-Jones and reports showed European industrial production for April contracted by 0.8 percent.

The iShares Dow Jones US Home Construction Index Fund (ITB) also ended in red as US retail sales dropped faster than estimated, indicating a faltering recovery. ITB, up 20.62 percent since Jan, lost 2.38 percent on the day as investors shunned riskier assets.

In regards to the ever worsening European debt crisis, here’s a tongue-in-cheek video explaining the finer points of global finance:

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