Europe Worries Pulls Major Market ETFs Lower; VIXY Spikes, EWG Crashes

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Major market ETFs posted their second straight loss Monday with all three indexes finishing lower over investors’ concern that Spain may request a full-fledged bailout package, triggering a sell-off and boosting the greenback.

The Dow Jones Industrial Average (DJIA) finished off 101 points, or 0.8 percent, recovering from an early near 240-point fall. Within the Dow, the breadth remained negative with only six stocks among the 30-component blue-chip index closing higher.

The S&P 500 Index (SPX) shed 12 points, recouping from the day’s lowest of 1338, with materials and consumer-discretionary falling the most. All the 10 business groups closed lower.

US Treasury yields fell to new lows as demand for US government debt spiked today after weekend reports in German media that Greece’s failure to meet bailout targets may result in deferment of the next-round of aid money by the International Monetary Fund. The IMF, however, dismissed the reports even as German 10-year borrowing costs hit record lows.

US 10-year yields traded at record new lows as investors globally continue to gobble up US safe-haven assets. The benchmark 10-year yield on Treasuries dropped two basis points to 1.44 percent in late afternoon trading, off a record low of 1.396. Yield on 30-year bond fell four basis points to 2.51 percent as bank of Spain reported the Iberian nation’s GDP shrank 0.4 percent in the second quarter.

ETFs in the news:

As markets witnessed heightened volatility over negative developments in Europe, the so-called fear-tracking CBOE Volatility Index (VIX) surged ahead, vaulting 14.4 percent on the day.

Weak risk sentiment pushed VIX-linked ETFs higher, with the ProShares VIX Short-Term Futures ETF (VIXY) jumping 6.33 percent on the day. Other volatility funds such as the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) also made solid gains, leaping 6.52 percent over Friday.

The day’s European developments weighed on Europe linked products. The iShares MSCI Germany Index Fund tumbled 3.26 percent, emerging among the day’s top percentage decliners.

Worries simply remain that German debt will rise, inhibiting its growth rate if Spain requests a full-blown rescue package. Media reports suggested at least half-a-dozen Spanish regions after Valencia may request Madrid for further funds.

Due to flight of capital to advanced economies, emerging markets also bore investor brunt with the iShares MSCI Emerging Markets Index Fund (EEM) and the iShares’ MSCI Brazil Index Fund (EWZ) falling 2.62 percent and 2.61 percent, respectively.

It’s too early to tell whether the first domino has finally fallen but EU exit calls, unheard of only a few months ago, are getting louder especially in countries like Spain and Italy. Things may very well accelerate to the downside, so be sure to track and execute your trailing sell stops.

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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