Equity markets started off in the red on last Monday and continued their downward trend on Tuesday after dismal housing data showed existing home sales plunged by more than 20% as buyers shied away from the market now that the tax credit for new purchases has expired. This news, compounded with new home sales on Wednesday (which sank 12.4% to their lowest level since the government began keeping track of the statistic in 1963), led many to believe that a double dip in housing was just around the corner. This spike in anxiety sent shocks through global equity markets and had investors running to the relative safety of Treasury bills and precious metals. Salvaging the week, equity markets surged higher on Friday thanks to comments from Bernanke that seemed to suggest the Fed would be willing to do anything in its power to try to boost the economy and reduce unemployment. This surge on Friday helped markets to regain much of their losses and finish down less than 1% on the week [see Three ETF Ideas For The Third Quarter].
With minimal earnings reports, investors will once again focus in on a number of key data releases in the coming week. Among the most influential bulletins looks to be a variety of GDP reports from industrialized countries around the globe as well as U.S. unemployment to cap things off on Friday before the long holiday weekend. Below, we profile three ETFs that look to be in focus over the next several days [for more ETF ideas, sign up for our free ETF newsletter]:
Global X Lithium ETF (LIT)
Why LIT Could Be In Focus: In a little over a month, this new fund from Global X has seen respectable asset flows of close to $25 million, but this week could be the most important for the fund since its launch. That is because Chilean mining giant SQM, the largest producer of lithium in the world that makes up 20% of LIT, is scheduled to report earnings on Tuesday. That should give investors a glimpse at the health of the lithium industry. The company is expected to report earnings of $0.31 for the most recent quarter, down one cent compared to the same period last year. However, should SQM manage to beat expectations and show growth, it could help to spur increased interest in the lithium industry and boost some of the smaller companies who depend to some extent on SQM [also read New ETFs Grow Up So Fast].
Rydex CurrencyShares Euro Currency Trust (FXE)
Why FXE Could Be In Focus: With the Fed suggesting that it is willing to perform more quantitative easing, all eyes will be on the ECB this week to see what plans are to revitalize the struggling European economy. The common currency will also see the release of figures regarding German unemployment levels and euro zone GDP growth, which could also heavily impact the currency and signal the strength of the European economy. Most analysts anticipate that the bank will leave rates on hold and maintain the generous liquidity programs; there is not really much of a choice given the weakness in other large developed markets such as Japan and the U.S. The bank cannot risk a rapid rise in the euro which could choke off an export-led recovery, and the economy is likely still too weak to endure a quick exit from the liquidity provisions that seem likely to last well into 2011 at the earliest [also read Time For A Leveraged Euro ETF?].
Why EWD Could Be In Focus: As Sweden’s market continues to surge past its euro zone rivals, the Swedish currency is in danger of becoming uncompetitive with its southern counterparts. The country’s central bank will meet on Thursday to discuss rates that were bumped up to 50 basis points from their earlier level of 0.25% at a meeting at the start of July in an effort to slow the economy. According to analyst predictions, the Bank is expected to raise rates by 25 basis points yet again this week, a number which will likely further increase the value of a currency that has gained almost 10% against the euro this year. That could potentially endanger export competitiveness and cut into Swedish profit levels. Additionally, the ECB meeting and corresponding data releases could further drive investors into this surging economy, so look for any news out of Frankfurt to heavily impact EWD as well [read Swedish ETF: The Bright Spot In Troubled Europe].
EWA: The Australian election remains undecided thanks to a competitive vote that left both major parties shy of the required number of seats to form a majority government. With a “hung Parliament” the future of Australian policy in the near term could go either way. Meanwhile top component of EWA, mining giant BHP Billiton reported strong earnings with a 16% increase in profits and a 5.2% increase in revenues. However, the company cited its concerns over the global economy as reason to temper expectations heading into the end of 2010, causing shares to sell-off in mid-week trading. Nevertheless, a strong Friday session in which commodity prices jumped across the board helped to buoy shares of BHP and send EWA back to break-even range on the week [see fundamentals of EWA here].
PGJ: Shares of this popular fund targeting Chinese ADRs sank by 1.5% in last week’s trading thanks to weakness out of top component PetroChina. Although the company reported surging profits overall, dramatically lower refining margins–which fell 68%–helped to turn investors bearish on the Chinese oil giant. More weakness came after China Life Insurance disappointed investors by posting weak earnings, pushing the company lower by more than 5%, its biggest drop in nine months. These two giants weighed on PGJ and more than canceled out the relatively strong news out of Yanzhou Coal Mining, which like other industrial resource firms posted decent gains on the week [see charts of PGJ here].
EWC: Shares of this popular Canadian ETF managed to squeeze by with a slight gain on the week thanks to a 2.7% gain in Friday trading. This gain on the week seemed in doubt on Thursday as the Royal Bank of Canada missed earnings estimates and fell by 3.5% on the day. Its quarterly profits were down more than 18% thanks to weakness in capital market businesses and credit losses. However, not all the Canadian banks had a rough week; the Bank of Montreal, Canada’s fourth biggest bank, saw earnings rise to C$1.13 from 97 Canadian cents a year earlier. The company also reported an ROE of 13.7% and closed up by almost 1% after it reported this solid result, helping to balance out the weakness from the Royal Bank [see more on EWC's holdings page].
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Disclosure: Eric is long LIT, photo is courtesy of Javier Martin.