The final full week of June was certainly a rocky period to be in the equity markets, as quickly changing expectations led to huge increases in volatility and large movements in commodity markets. Meanwhile, in Europe, worries over Greece temporarily subsided as the Prime Minister of the nation survived a confidence vote, setting the stage for a crucial debate next week regarding further austerity measures. However, worries are already beginning to spread to other, large nations including Italy, one of the eight largest economies in the world by GDP. EWI, the main Italian ETF was down by over 3% to close out the week as fears over a downgrade left many investors running for the exits to close out the week. Closer to home, the Federal Reserve also met this past week, announcing an end to the QE2 program as anticipated at the end of the month. However, while Bernanke and Company didn't feel the need for another round of QE, they did say that the economy is still very weak and that worries remain for the global economic picture. So with this Fed meeting and uncertainty over Europe it was an eventful week to say the least in the markets.
This week is surprisingly light on data as no major central banks are meeting and earnings reports remain scarce to say the least, as only Nike and Monsanto register on the radar. With that being said, there are a few key data releases that investors need to keep their eyes on in certain sectors of the marketplace, as these reports could definitely move some currencies or sector ETFs. These reports include CPI and GDP from Canada as well as manufacturing data from the Chicago Fed region as well as China. In addition to these reports, investors will likely focus in on two things; the ongoing Greek crisis and the winding down of QE2 in the U.S. In Europe, investors will focus in on a key vote this week in which the Parliament decides on further austerity measures for the country. As of now, the margin is razor thin, and it could swing in either direction; potentially sealing the fate of the highly-indebted nation. Meanwhile in the U.S., QE2 ends on Thursday and it remains to be seen how the bond market will react without massive purchases from the Fed. With this backdrop, investors should look for the following three ETFs to be in for an active week.
Rydex CurrencyShares Euro Currency Trust
Why FXE Will Be in Focus: This ETF looks to hinge on the vote in Greece as failure to pass further austerity measures looks to start a chain reaction in the region. If that happens, Greece will probably not get more funds from the richer European nations, causing yields to spike and leading to either an outright default or significant haircuts on the outstanding notes. If that transpires, it is likely to be a huge negative for the euro pushing the risks of contagion higher. On the flip side, if Greece passes the measures it could stave off further worries in the region and allow the euro to regain some of its recent losses against the greenback and the other major currencies of the world [see charts of FXE here].
iShares MSCI Japan Index Fund
Why EWJ Will Be in Focus: Although Japan is still recovering from the Tsunami in March, the country is beginning to gain some appeal from investors seeking a large developed market outside of both Europe and the U.S. EWJ has gained 1.6% in the past week, far outpacing its industrialized peers in this short period of time. However, this could all change with the release of the Tankan Large Manufacturers Outlook on Thursday night. The reading gives investors insight into how large Japanese businesses perceive economic trends for the next quarter, potentially signaling how the export-driven economy will perform. Since EWJ is full of major exporters -- Toyota, Honda, and Canon are all in the top four -- this fund could be particularly impacted by these events [see holdings of EWJ here].
iShares S&P Global Industrials Sector Index Fund
Why EXI Will Be in Focus: EXI tracks the S&P Global Industrials Index which measures the performance of the industrials sector of global equity markets, putting close to 50% of its assets in American firms. As a result investors should look for this fund to be heavily impacted not only by the Chinese PMI Manufacturing survey on Friday but the Chicago PMI on Thursday and the ISM Manufacturing Index report to close out the week. Thanks to this bevy of data releases -- not to mention reports regarding vehicle sales -- it could be a very volatile week for this global fund, especially if any of the aforementioned readings deviate significantly from analyst expectations [see more on EXI's fact sheet].
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