In trade on Monday the XLF, the U.S. financial sector ETF, dropped 0.60 points (4.6%) to trade at 12.41, and reversed a very positive period of trade that has now absorbed massive economic and stress test releases. Things moved lower on low volume; 137m ETF's changed hands, below the ten day average of 193m. Without a solid period of trade from the banking sector the main equity markets are going to struggle to hold the higher ground, and although lower in trade on Monday recent moves have increased the Financial Sector value dramatically from the test of $6 in March.
Treasury notes gained in value on Monday, reversing a seven week run in declines, as equity markets found sellers, and the Fed stepped in to buy $3.5b of notes again. The 10 year note value had created the biggest decline in two years of trade by reducing in value, and raising the yield, for seven consecutive weeks, something that was addressed in U.S. trade at the start of this week. Thirty-year bonds have lost investors over 20% so far this year, but did push back a little to settle at 4.22%. The moves in the Treasury markets have allowed mortgage rate to move above 5% in the U.S., something that the Fed and administration will not want to have seen.
The Usd was able to hold ground in reaction to Treasury moves, even after the Treasury created another mass of dollar backed notes for the market and the Fed to once absorb at auction this week. The Fed continues its short-dollar mandate by buying notes at the fastest rate of knots since the announcement of the $300b six month purchasing spree, with over $100b having already been bought and put into the Fed reserves. The Fed is working hard to support the market, but now needs to take care that interest rates on these notes do not get too far above what is perceived to be the 3.2% target rate, because as we saw in trade on Monday, the mortgage rate is very quick to follow the 10 and 30 year yields.
June delivery values closed at the $58.50 area and consolidated a 10% move higher from last week that hit a five week high on better than expected U.S. housing data, and after holding major support at $48.50.
Gold for June delivery closed lower by $1.40 (-0.1%) to close at $913 per ounce. Traders tested and broke a major resistance area at $910 last week, at the 100 and 50 day SMA area. Bullion held in the SPDR Gold ETF remained unchanged at a record 1,100+ metric tons.