A deluge of bad data conspired to sink markets in the holiday-shortened week as most major benchmarks finished the period down significantly. The S&P 500 sank by 2.8% on the week while the 10-year Treasury Bond was boosted by heavy amounts of safe haven buying and flirted with the 3.00% mark to close out Friday's session. This was largely due to the horrendous data on the jobs front as far less jobs than expected were created both when looking at the ADP report and the government numbers.
The ADP report showed that just 38,000 jobs were created during the month, well below analyst estimates of 175,000, and it was further confirmed on Friday when the non-farm payrolls rose by just 83,000, and the unemployment rate jumped 0.2% to the 9.1% mark. "The jobless data was clearly a shock to the system today, as investors were reminded that the economy is going nowhere fast," said Keith Springer, president of Springer Financial Advisors in Sacramento, Calif.
Data was also equally poor on the sales and manufacturing fronts as total vehicle sales fell to an annualized rate of just 11.75 million while the ISM manufacturing index came in below expectations as well. Thanks to this, investors largely capitulated last week and fled the stock market for safe havens in order to wait out this economic malaise, suggesting that without more positive numbers, or a sharp turnaround in Europe, the U.S. economy looks likely to have a long, rough summer.
This week, the investment focus is likely to shift to foreign markets as there is a lack of U.S. data releases over the next five days. In fact, the only data coming out of the U.S. that has any potential to move the markets are the releases of the Beige Book, the Treasury Budget, and claims for unemployment. Meanwhile, international markets look to see a variety of key data points, including a number of central bank meetings as well as further clarification regarding the European debt situation in the form of GDP reports and CPI.
The week will see bank meetings from Australia, New Zealand, the ECB, England, and Brazil highlighting how Europe plans to deal with the crisis, what developed markets in the Pacific Rim are experiencing, and how Brazil looks to keep inflation in check while still growing its economy at a rapid pace. Thanks to this, it could be an especially rocky week for both the U.S. dollar and a number of other currencies, especially those that are tied to commodities such as Australia and Brazil. With this backdrop, we have highlighted three ETFs below that could be in for an active week.
MSCI New Zealand Investable Market Index Fund (NYSE: ENZL)
Why ENZL Will Be in Focus: The New Zealand economy has been relatively well insulated from the developed market troubles in many other regions of the world so far this year, thanks to rising demand in Asia for many of its key exports. However, weakness in Australia could signal bad news for the island nation, and some are growing worried that ENZL has outpaced its regional peers too quickly, potentially leading to a sharp slide for the fund soon. In fact, ENZL has outperformed EWA by close to 900 basis points so far this year and has had similarly robust performances when compared to other markets in the region. Thanks to this, the country's central bank meeting later this week could greatly impact the national markets. Rates currently stand at 2.5% thanks to a 50 basis point drop in March, and many are expecting the bank to keep rates unchanged this time around. However, given the weakness in Australia and the strength of the Kiwi dollar news, a move by the bank to talk the currency down may not be entirely out of the question, so investors will need to keep a close eye on this fund later this week [also see May ETFdb Category Kings: Best Performing ETFs].
Rydex CurrencyShares Euro Currency Trust (NYSE: FXE)
Why FXE Will Be in Focus: Although Europe remains on edge, some progress has been made in terms of dealing with Greece and keeping the highly indebted nation afloat at least for the short term. A bailout agreement appears to have been reached although, at time of writing, nothing was set in stone regarding the package. Beyond any new news on this subject, investors are also likely to focus in a number of key reports from the region including eurozone GDP and CPI as well as an ECB meeting.
Both the inflation report and the GDP figures should give investors a clue as to how likely Trichet is to raise rates later in the year in order to combat inflation. In fact, while all the economists in a recent survey believe that the bank will keep rates on hold this time around, many are still looking for a hike in July. "Greek tensions will have only a limited impact on the ECB's determination to raise rates in July," said Juergen Michels, chief euro-region economist at Citigroup in London. "The euro area as a whole is doing pretty well, therefore the ECB will have to adjust the benchmark rate. It has to position itself not least to safeguard its credibility." Should this appear to be the case, and if the Greek situation remains relatively under control, it could be a pretty solid week for FXE [Time for a Leveraged Euro ETF?].
Market Vectors Brazil Small-Cap ETF (NYSE: BRF)
Why BRF Will Be in Focus: Brazilian markets have been in the news lately as a great example of the issues plaguing emerging markets in the current environment. The country has a rapidly growing economy but inflation remains an issue that has been hard to contain. Furthermore, rate hikes have done little to stem the inflationary pressures and the added yields have only attracted foreign investors, boosting domestic currencies and making exports uncompetitive. As a result, most emerging markets find themselves in a tough spot and although many are growing more independent of their Western counterparts, they are still heavily influenced by the rough times that these nations are having.
Thanks to this trend, this week's Brazilian central bank meeting looks to be extremely important for the country as it tries to get inflation under control without crushing growth in the process. Inflation in April came in at 6.5% or roughly 2 percent above the target rate of 4.5% despite some of the highest interest rates in a major economy anywhere in the world. Most analysts expect that the country will continue its rate hiking campaign by boosting the benchmark Selic rate by 25 basis points up to 12.25%, the fourth such increase in a row this year. "The central bank said they would raise rates as much as necessary to take inflation expectations to the target center in 2012," said Newton Rosa, the chief economist with Sul America Investimentos. "That's still far off, with outlooks running above the target center, and so they're going to keep raising the Selic." As a result, investors should look for the popular Brazil small-cap ETF BRF, which tracks pint sized securities that have their operations in Brazil, to be very active this week, especially after the country's central bank meets on Wednesday as any change in expectations could impact this fund more than most in the region [Emerging Market ETFs: Seven Factors Every Investor Should Consider].
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Disclosure: Long ENZL, photo is courtesy of Joseph Watkins.
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