This past week was a surprisingly solid one for markets as a choppy session on Monday gave way to broad strength in Tuesday and Wednesday trading. Markets performed poorly in Thursday and then closed out the week in a volatile session thanks to a release of the GDP report and Ben Bernanke’s annual speech at Jackson Hole, Wyoming. The period was especially good for financials, although it didn’t look that way at the beginning of the week. Warren Buffet stepped in with a five billion dollar investment in embattled banking giant Bank of America, helping to push the stock up by double digits on the week. This also soothed investors’ fears over another systemic crisis in the sector, helping to boost shares of banks large and small on the week. In commodity markets, gold finally saw an end to its record run, at least for the time being, as the precious metal hit about $1,900/oz. in the middle part of the week only to sell-off significantly, losing as much as $100/oz. in a single trading day. The metal did add a little bit to close out the week, but given the uncertainty still in the markets, there is no telling which way gold will go as we head into September.
This week, investors are likely to focus on Europe once again as a number of important euro zone members continue to teeter on the brink of a downgrade or default. Beyond these ever-present European woes, investors will also look to a number of GDP reports that are due out this week in several key developed markets. These reports are highlighted by releases from Germany and Canada while CPI figures and PPI reports are also due out as well. The week also has a few important releases on the emerging market front, especially from China and Brazil. In South America, investors will look to the Brazilian central bank and its interest rate decision for more guidance on the country’s inflation epidemic and what the country is doing to curtail rapidly increasing prices. Meanwhile in China, investors will look to Thursday’s release of the country’s PMI manufacturing survey for more clarification on how the nation’s vital production sector is holding up in these uncertain times. With this backdrop, investors should look for the following three ETFs to be in for an active week:
iShares MSCI Canada Index Fund (EWC)
Why EWC Will Be In Focus: Although Canada’s economy remains closed tied to the American one, the country has managed to do better than most thanks to its vast supplies of agricultural and petrochemical products. Yet, with a prolonged slowdown in the U.S. and weakness in some key commodities, some are beginning to worry that Canada might get sucked into a rough patch as well. Investors should get more clarification on this trend later this week thanks to a number of key data points coming out from the nation. First, several of the country’s key banks, which are also top components of EWC, are giving their earnings reports. This should help shed some light on how non-European developed market banks have been holding up and what investors can expect for the rest of the year. Beyond that, investors in Canadian funds will also likely focus in on the nation’s GDP report later in the week as well. Analysts expect the country to show flat levels of growth in the reading so any deviation, negative or positive, is likely to heavily influence the markets and result in a big move for EWC [see charts of EWC here].
PowerShares Dynamic Insurance Fund (PIC)
Why PIC Will Be In Focus: Insurers up and down the East Coast are likely to be nervously watching the path of Hurricane Irene as the storm sets its sights on major population centers along the Eastern Seaboard. Given how grossly unprepared citizens in that particular area of the nation are for hurricanes, the damage could be severe even though the storm isn’t nearly as powerful as many of the hurricanes we have seen in the Gulf in recent years. Thanks to this, investors in funds such as PIC, which track a number of insurers with national operations, could take a severe hit to their bottom lines if large swaths of major cities are damaged. However, if the storm weakens significantly or misses major population areas, investors could buy up PIC as a contrarian play and potentially profit as well. Either way, it could be volatile week for this fund as well as any other products with significant exposure to the insurance industry [see holdings of PIC here].
Market Vectors Germany Small-Cap ETF (GERJ)
Why GERJ Will Be In Focus: As more begins to be demanded of Germany in order to be a sort-of savior of the euro zone, the nation’s economy is beginning to crumble under the weight of the entire Continent on its shoulders. Last week’s German ZEW Survey of economic sentiment plunged to -37.6, well below expectations which called for a decline to -26.0. This suggests that business officials in Germany are growing increasingly worried about the nation’s economy and could begin to hunker down in order to weather the storm. Furthermore, some analysts are beginning to speculate that Germany may lose its prized AAA credit rating thanks to its support of bailouts and increasingly uncertain fiscal position, although some ratings agencies have reaffirmed the golden rating in recent days. Thanks to this uncertainty and increasingly perilous fiscal situation, investors will likely take a closer look at this week’s release of German GDP on Thursday. Analysts are currently looking for a 0.1% increase in GDP when seasonally adjusted and measured quarter-over-quarter, suggesting that the nation is close to double dip territory. With this backdrop, GERJ could be in for a volatile week; the product tracks small caps which are generally more impacted by local events, and are often more volatile to begin with than their large cap brethren. Thanks to this, it could be an important week for this increasingly beaten down German fund [see all the ETFs that offer exposure to Germany].
Disclosure: No positions at time of writing.
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