Thanks to a surprisingly solid reading from the Chicago PMI yesterday, many investors are growing increasingly optimistic that the economy has bottomed out in the near term. The reading crushed analyst expectations by close to eight points and many speculate that renewed production in the automotive sector may have been a large reason for the boost. Due to this speculation, many investors look to have their eyes on today’s Motor Vehicle Sales report for further clarification on this trend.
Motor vehicle sales have been extremely rocky as of late, largely due to the weak domestic economy and supply problems stemming form the Japanese tsunami in March. Thanks to these events, sales have plummeted from a seasonally adjusted annualized rate of about 10 million cars down to just over nine million in last month’s reading. However, investors are looking for supply problems to ease this month and all analysts expect a gain in sales for June. In fact, the consensus estimate suggests a 500,000 increase, potentially signaling that the auto industry is getting back on track.
Thanks to some new ETFs that have launched in the past few months, investors have two direct options in order to bet on the automotive industry. Both CARZ and VROM both represent funds that could be on the move today thanks to their focus but we look for a commodity product to be especially under the microscope as well. Close to 50% of the world’s platinum output is used in autocatalysts in cars so further car sales could help to boost the price of the metal significantly. That is why we look for the ETFS Physical Platinum Shares Fund (PPLT) to be today’s ETF to watch.
PPLT is by far the most popular product tracking the commodity of platinum, with close to $750 million in AUM. The product holds physical bars of the metal in secure vaults in Europe so the fund can be thought of as more of a pure play than some of its futures-based counterparts that do not necessarily track spot prices. Since commodity prices are often more volatile than broad equity funds, we look for PPLT to be on the move more so than either of its counterparts that target the car industry [see more on PPLT's fact sheet].
Unfortunately for holders of this fund, PPLT has not been immune to the general commodity decline over the past few months as a stronger dollar and fears over a slowdown have hit this precious metal hard. Despite gaining roughly 12% over the last 52 weeks, PPLT has fallen sharply over the near term, losing 5.2% in the past month and close to 2.7% in the past two weeks alone.
Thanks to these stiff losses, investors will likely look at today’s important data release as a way to possibly help break PPLT out of its rut and push it back towards the solid performance that it experienced in 2010. Should car sales manage to rise past the expected level or even hit the 10 million mark, look for PPLT to surge on the day. If, however, investors see further weakness in sales and if figures should show a decline from the previous month, investors will likely sell-off PPLT to start the second half of the year.
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Disclosure: No positions at time of writing.
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