3 ETFs to Watch This Week: EWP, XLI and EWC

Includes: EWC, EWP, XLI
by: Eric Dutram

U.S. equities finished last week flat as losses in Monday and Tuesday trading were soon erased by solid performances out of the blue chips later in the week to push the S&P 500 back to roughly breakeven for the five day period. International markets didn’t fare much better on the week, and in many cases declined for the period as many investors sought out safe havens instead of risky international equities. Thanks to this slowly rising fear, gold did manage to once again break through the $1,500/oz. level, finishing the week above $1,510. Meanwhile, oil was extremely volatile as the vital commodity declined to about $96/bbl. before surging higher in the mid-week timeframe only to end up at the $100/bbl. mark to end the week. In other news, LinkedIn (LNKD), the business networking site, IPO’ed on Thursday, creating a wave of euphoria in the markets for everything "web 2.0." The stock was initially priced at $45/share but soon soared as markets opened, rising close to $100 in its first day trading. This suggested to many that a new wave of Internet companies would be hitting the markets soon, giving financial companies a much needed revenue boost and potentially adding some of America’s best known companies to the major exchanges.

This week, investors have just a few earnings reports to look forward to and most of them are smaller firms or are international. As a result, investors should look for key data releases to play an out-sized role in this week’s trading, especially considering that no major central banks are meeting – unless you count Mexico. Highlighting this week’s data releases are a variety of data points from the EU’s largest economy, Germany, including the PMI, Q1 GDP and consumer confidence in the country. Elsewhere in Europe, Great Britain also releases its GDP results for the first quarter, a release that is likely to put the nation’s market into focus, especially considering the country’s inflation rate and the previous reading which came in at just 0.5% quarter over quarter. Lastly, investors should look for the industrial side of the U.S. economy to be in focus as well: The durable goods orders report comes out during mid-week and U.S. GDP growth - annualized - also comes out on Friday and is expected to show growth of 2.2%, potentially setting the stage for a rocky week if these figures do not live up to expectations. With this backdrop, we have highlighted three ETFs below that could be in for an active week:

iShares MSCI Spain Index Fund (NYSEARCA:EWP)

Why EWP Will Be in Focus: Spain has had a tumultuous few days as worries over sovereign debt in a number of other peripheral members has reignited fears over Spain’s situation as well. The country also faced large scale protests from a vast number of people who are demonstrating against 21% unemployment and an absurd youth jobless rate of 42%. This came to a head in the country’s local and regional elections yesterday as the incumbent Socialists were poised to take heavy losses and lose a great deal of power to the rival Conservatives in the nation. Should fears reignite over Spanish debt, it could be another rough week for this popular fund, potentially setting off another crisis in the eurozone, especially if continued turmoil takes place in the Greek or Portuguese markets.

Industrials Select Sector SPDR (NYSEARCA:XLI)

Why XLI Will Be in Focus: Although the U.S. dollar has strengthened marginally in the past few days, the currency is still on a steady downward path against most of its major rivals. This has been great news for the few companies that manufacture products in the U.S. as it allows their exports to be cheaper to foreign clients, potentially allowing sales of these products to increase. While this is speculation, Wednesday’s report on Durable Goods Orders for the month of April should help to shed some light on the subject and let investors find out if a weaker dollar has truly led to a manufacturing boom. Unfortunately, analysts expect orders to fall 1.5% from the previous month, but with transportation stripped out it looks to rise 0.9% from the previous period. Both of these figures represent a decline from the March numbers so if we see producers beat these estimates it could help to push XLI to a solid week of trading.

iShares MSCI Canada Index Fund (NYSEARCA:EWC)

Why EWC Will Be in Focus: Canadian securities have been in focus as of late as volatile commodity prices have greatly influenced this resource intensive developed market. As a result, this popular Canadian fund has lost 4.4% over the past month but it has gained close to 11% over the past half-year period, demonstrating how struggling resource prices and a weak U.S. economy have impacted this market. This volatility could continue this week as well as two of the country’s largest banks - Bank of Montreal (NYSE:BMO) and the Royal Bank of Canada (NYSE:RY) - both give their quarterly earnings reports. Undoubtedly, the Royal Bank of Canada will be of the most concern to investors as this company makes up 6.2% of EWC and is the fund’s top component. The company’s stock has been trending higher over the past three months and a solid earnings report coupled with strong guidance could help this bank break through its 52-week high. If, however, the company fails to live up to expectations or warns investors on future profits thanks to inflation or possible interest rate hikes, RY and EWC at large could take a significant tumble to close out the week.

Disclosure: No positions at time of writing.

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