American markets floated upwards for much of Tuesday’s session until right before the close when Moody’s downgraded Ireland to ‘junk’ pushing equities sharply lower to close out the day. The heaviest losses came in the technology sector as the Nasdaq underperformed its counterparts, led lower by a nearly 1.7% loss in both Intel and Oracle. Utilities and basic materials, however, did manage to have solid days led by strength in natural resource prices and a desire for more safe haven investments in the space. Global markets were also in the red pretty much across the board as the Asia-Pacific region started the day with a nearly 1.8% loss in Australia and Shanghai, followed by a 3% tumble in the Hang Seng exchange. Meanwhile, in Europe, most benchmarks finished lower by about one percent although the Italian exchange did make back some of its losses, gaining 1.2% in Tuesday trading. Thanks to the Irish turmoil and further worries over the European debt crisis, investors saw the U.S. dollar index add about 0.2% on the day, creating headwinds for most commodities. However, supply issues and worries over both the debt ceiling and more QE in the U.S. allowed many resources to rise on the day nonetheless. In fact, three of the four major commodity indexes saw gains on the day with only the S&P GSCI falling in Tuesday trading.
One of the biggest commodity winners on the day was in the sugar market as futures for this sweet commodity roared higher by 5.4% in Tuesday trading. Today’s large gains were mostly due to concerns over the supplies emanating from the number one producer of the crop, Brazil. A major sugar merchant cut its estimate for Brazil’s output in the main growing region by 40 million tonnes, pushing estimates down to just 545 million tonnes, well below last year’s figure of 557. Thanks to this, many traders sold off futures contracts of the crop ahead of tomorrow’s release from Unica regarding an updated crop forecast. “I think this Brazilian crop is shrinking faster than we’re thinking,” said Country Hedging Inc senior analyst Sterling Smith. Analysts are also growing concerned over the supplies from India as well, with many forecasting that exports from the major consumer may decline in the near future, further adding to the price pressure for this commodity and allowing sugar futures to rise higher in Tuesday trading.
One of the biggest commodity losers was in the cotton market as the fluffy commodity saw its price fall by close to 4.1% on the day. Today’s continuation of the losing streak in cotton came thanks to worries over a slowdown in China and less demand for the textile component as a result. These concerns largely came about thanks to inflation and trade balance issues which both suggested that China may be bringing less cotton into the country in the near future. Chinese imports in June grew at the slowest pace in nearly two years, and since many of the products that China imports are raw commodities, many took this as a signal that cotton purchases from American markets were on the decline. Additionally, inflation remains a huge issue in the nation and further rate hikes and reserve ratio increases seem to be in the cards for the country, a scenario that could curtail growth and limit demand for textile products in the rapidly emerging nation. Thanks to these fears, demand for cotton futures tumbled again today, pushing prices for October contracts down to $1.07/lb. while December contracts slid to the $1.05/lb. mark.
Disclosure: No positions at time of writing, charts courtesy of BarChart.com.