As the stock market continues to trade range bound despite solid earnings reports from a variety of companies, economic data is beginning to weigh more heavily on the markets. With durable goods orders down 1% since last month and unemployment levels still above 9.5%, the economic outlook remains gloomy for most Americans. This leaves many economists to worry that we could sink back into a dreaded double-dip recession. While the U.S. situation remains uncertain, economic activity may be picking up in other developed markets which have seen positive developments lately.
Earlier this week, quality data came out of a variety of developed markets suggesting that the economic condition may be bottoming out in many advanced economies. In Europe, unemployment declined to 7.6% and economic confidence rose more than expected to top 101.3 compared to expectations of a ten basis point rise from 99.0 last month. Australia also reported good news when it released better-than-expected CPI numbers which showed growth of just 0.6% this quarter compared to a forecast of 1.0% while their neighbors in New Zealand raised rates by 25 basis points to 3%.
These trends put a great deal of pressure on the U.S. market to match these relatively bullish reports by posting solid Q2 GDP growth figures later today. “The U.S. data now is the main focus in the forex markets, and it continues to come on the disappointing side,” said Amelia Bourdeau, a currency strategist at UBS AG in Stamford, Connecticut. Most expect the Commerce Department to release lower numbers than last quarter’s revised figures of 2.7% growth with the consensus coming in at 2.5% growth for the most recent quarter. However, there are varying opinions on this with some companies, such as Barclays, estimating growth of 3.0% down compared to a 2.0% prediction from Goldman Sachs [see Safe Haven ETFs: Five Funds For Riding Out The Storm].
For this reason, we have made the PowerShares DB USD Index Bullish Fund (UUP) Friday’s ETF to watch. UUP tracks the Deutsche Bank Long US Dollar Index (USDX) Futures Index which is a rules-based index composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. Currently, the fund maintains a significant allocation to contracts that bet against the euro against the dollar which makes up 57.6% of the fund, followed by a 13.6% weighting to Japanese yen, and a 11.9% allocation to British pounds. Over the past 52 weeks, the fund has been relatively flat, posting a gain of just 0.3%. However, the fund has sunk by 5.3% over the past month but looks to turn this performance around later today on a solid GDP growth figure [also see All American ETF Options].
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Disclosure: No positions at time of writing.