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This past week was yet another interesting one for the markets as stocks managed to rise broadly despite continued worries over the health of the Japanese economy and the ongoing situation in Libya which is quickly spiraling into an all-out war. Markets, for the most part, shrugged off these concerns and instead focused in on solid economic data in the form of quality jobs reports which showed that over 200,000 jobs were created in March. This figure beat analyst expectations and also helped to push the overall unemployment rate down to 8.8%, suggesting to many that a mild jobs recovery is finally underway. This news, along with some M&A activity in the financial sector, helped to boost investor sentiment heading into the second quarter, leaving some to hope that markets can repeat the returns that they showed in the first few months of the year and once again surge higher.
This week looks to be a little heavier in terms of data before investors gear up for earnings season once again next week. On tap in the next few sessions are a number of key central bank meetings from around the world, a few key earnings reports, and some key economic data which should help to further clarify the path of the economy heading into the second quarter and how robust (or not) the recovery will be. In light of this, as well as the numerous geopolitical developments around the world, investors should look for the following three ETFs to be in focus throughout the week [for more ETF insights, sign up for our free ETF newsletter]:
United States Oil Fund (NYSE: USO )
Why USO Will Be in Focus: Oil prices have been extremely volatile as of late thanks to a number of geopolitical factors that are tugging at oil in both directions. The situation in Libya is quickly deteriorating and many traders have all but written off the country's supplies for the near-term as a result. Meanwhile, a likely slowdown in the world's third-largest economy thanks to the earthquake and tsunami looks to cap oil demand out of the nation for the foreseeable future, leaving traders to wonder just which way oil prices are heading.
Additionally, America's robust jobs report could also boost demand for oil as more people working and a humming economy will undoubtedly consume more of the vital commodity, further adding to the bullish prospects for the fuel. However, on the other hand, some are growing increasingly concerned that the key storage facility in Cushing, OK, could be reaching its capacity, potentially throwing a wrench into crude's rise. This is due to the fact that without excess capacity, those who are looking to take physical delivery of the contract will be unable to, forcing many to sell their contracts and thus pushing the price of crude oil lower. Thanks to these conflicting factors, there is really no telling where USO will go, only that it looks to be an extremely volatile week for the popular fund [see USO vs. BNO: Explaining the Big Gaps in Oil ETF Performance].
Rydex CurrencyShares Euro Currency Trust (NYSE: FXE )
Why FXE Will Be in Focus: Although there is not a great deal of data coming out of the market this week, one of the key reports due out is the central bank meeting from the European Central Bank in Frankfurt, Germany. The euro has already been rising thanks to expectations of a rate hike soon, and with high inflation readings this could come as quickly as this week. "Stronger than expected inflation data affirmed the case for ECB to raise rates in April and increases the possibility for more rate hikes down the road this year," Action Forex said in a report.
Because of the possibility of a hike, but the continued uncertainty surrounding the decision, FXE could be extremely volatile this week as traders jockey for position ahead of the meeting, attempting to be on the correct side of the trade. However, with inflation rising to 2.6% in March, the fourth month in a row that the rate has been above the bank's comfort zone of 2.0%, many believe a swift rate hike campaign is likely. Yet with a number of eurozone economies already struggling to pay their bills, some cannot fathom the ECB raising rates, putting the bank in an awkward position that will surely lead to a rough week for FXE traders [see all the ETFs tracking the euro].
SPDR Russell/Nomura Small Cap Japan Fund (NYSE: JSC )
Why JSC Will Be in Focus: As more news is brought to light about the disaster in Japan, the more likely it seems as though the nation will be struggling with the aftermath of quake for a long time. Radiation continues to plague much of the Japanese countryside, and there are ongoing concerns over high levels of radioactive materials seeping into the food supply, potentially tainting products for years. The financial impact has also been severe as Credit Default Swaps on Japanese debt have spiked to levels approaching 150 basis points, up from just 115 at the end of last week. Other financial issues brought about by this crisis are also increasing, including the independence and creditability of the country's central bank. In fact, rumors are beginning to spread that the Bank of Japan may try to buy public debt directly to help fund the rebuilding, a move that could cause yields to spike and lead to a host of other long-term problems for the country, although it seems as though there is heavy opposition to the program among a number of government officials at this time.
Due to these worries, investors should focus in on JSC during this week's trading. The fund targets the Russell/Nomura Japan Small Cap Index represents approximately the smallest 15% of stocks in terms of float-adjusted market capitalization of the Russell/Nomura Total Market Index. This approach could push more of the fund into "pure play" Japanese securities, which are more likely to be impacted by events in the country as opposed to multinational companies like Toyota or Sony, which are based in Japan but do a large portion of their business outside of the Home Islands. Because of this, JSC could be among the most impacted by any updates in the quake damage report or radiation fears, so investors should keep on eye on this State Street fund for clues as to how the Japanese economy could fare in the sessions ahead [see Japan ETFs in Focus After Devastating Quake].
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