The Independence Day-shortened week was a tumultuous one for markets as stocks stayed flat for much of Tuesday and Wednesday only to soar higher in Thursday’s session on hopes of a jobs recovery. Unfortunately, this was quickly dispelled by a horrendous June jobs report which saw just 14,000 jobs created in the month, helping to push the national unemployment rate up to 9.2%. This caused stocks to sell-off heavily going into the weekend and pretty much erased any optimism that the markets had built up in the last few days. Meanwhile, overseas, Greece stayed out of the spotlight and was overshadowed by Portugal which was downgraded to junk status by Moody’s, sending European markets into a tailspin as fears over a debt contagion hits markets around the periphery. Nevertheless, the ECB did manage to raise rates by 25 basis points again during their most recent policy meeting, putting the region’s benchmark rate up to 1.5% and increasing the gap between itself and the rest of the developed world which is still clinging to ultra-low rates for the most part.
This week begins the start of the summer earnings season as Alcoa (AA) kicks things off for the markets after the bell today. In addition to this industrial bellwether, a number of other companies look to give their quarterly updates this week including, JP Morgan (JPM), Citigroup (C), Google (GOOG) and Yum! Brands (YUM). Beyond earnings, there are also a decent number of data points hitting the wires this week with many of the world’s most important economies giving updates on some of their most important statistics. Both Britain and Germany will shed light on their CPI rate - an especially important figure for the U.K. - while the U.S. will update investors on the rate of price increases in its economy as well. Additionally, investors will likely focus on some news coming out of China as well to see how the country’s growth rate has held up in light of a slowdown and several rate hikes. Both new loans and the GDP growth rate over the last quarter look to be released this week potentially signaling how China has been holding up in this tumultuous environment. In terms of central banks, only the Bank of Japan is giving an update on rates and while the consensus expects no change in the country’s ultra-low interest rate policy, any commentary regarding the pace of growth after March’s earthquake is likely to have a material impact on not only the yen but the stocks trading in Tokyo as well. With this backdrop, investors should look for the following three ETFs to be in for an active week:
Internet Index Fund (FDN)
Why FDN Will Be In Focus: Although technology has been beating many other sectors of the market over the past few weeks, that could be changing in the near future. A possible slowdown in both the U.S. and Europe could crush tech demand and other events have weighed on the industry as well. In fact, Morgan Stanley recently downgraded Google from overweight to equal-weight and slashed the price target on the security by $45, down to $600. This report helped to send shares of both the search giant and the broader tech sector tumbling last week, casting further doubt over the industry. However, all of this could change for tech later this week when GOOG gives its earnings report to investors on Thursday after the bell. The average analyst expectation calls for quarterly profits of $6.78 a share, a 18.7% increase from the year ago period. While this does represent robust growth, investors should note that the estimate has declined significantly over the past three months, dropping all the way from $7.08. As a result, GOOG earnings could be especially volatile this quarter and this report could help influence the broader tech sector. Thanks to this, investors should expect funds like FDN, which has a significant portion of its assets in Google, to be on the move this week with potentially high trading volumes.
Rydex CurrencyShares Japanese Yen Trust (FXY)
Why FXY Will Be In Focus: Thanks to the tsunami in Mid-March and ongoing supply problems in the nation, growth in the world’s third largest economy has been pretty slow so far this year. However, as things increasingly get back to normal in the hard hit nation, the country’s central bank is becoming more optimistic over the pace of recovery and many now believe that the nation will be back to pre-quake production levels by the end of autumn. As a result, many expect the Bank of Japan to hold off on further easing when it meets later this week while at the same time possibly increasing its economic forecast for the following year, possibly boosting the projected level of GDP growth above the 3.0% mark for the next fiscal year. Unfortunately, just as Japan appears to be getting back on its feet, the global economy looks to be slowing down, potentially putting the central bank in a rough spot to close out the year. Thanks to this, the upcoming central bank meeting could potentially move currency markets and have a huge impact on FXY this week. Any commentary on the pace of recovery or Bank of Japan’s plans for the end of the year could help to set the tone for the yen this week and should be closely monitored by those with an interest in currency markets, especially considering the lack of other central bank meetings in the next few days.
PowerShares Dynamic Food & Beverage Fund (PBJ)
Why PBJ Will Be In Focus: Generally speaking, in rough economic times companies that are engaged in the food and beverage industries tend to perform pretty well, as they represent a flight to quality in the equity space. This trend has, for the most part, held true so far in 2011 as PBJ has outperformed SPY over both the last quarter and year-to-date. However, PBJ has been underperforming the broad market more recently, sinking despite broad economic turmoil in both Europe and the U.S.. Thanks to the divergence between the long term trend and the short-term one, investors should look for this week’s earnings release from Yum! Brands, the parent company of Taco Bell, KFC and Pizza Hut, to drive the sector this week and set the record straight in terms of the path of the food and beverage industry in the near term. YUM is scheduled to report earnings after the bell on Wednesday and analysts are looking for earnings of 61 cents a share which would represent a 5.2% increase from the year ago period. In addition to the top and bottom line figures, investors are likely to focus in on the firm’s emerging markets growth as well as commodity costs in order to get a handle on how the rest of the industry could look when it reports later in the month.
Disclosure: Long PBJ.
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