As the second quarter kicks off, many equity markets look to continue their run higher on the back of a decent jobs report which saw the private sector adding close to 123,000 jobs in the month. The week ahead is light on data releases and earnings reports, but could still set the tone for the rest of the second quarter by testing the strength of the current rally. Below, we profile three ETFs in particular that could see an active week:
Rydex CurrencyShares Japanese Yen Trust (FXY)
Why FXY Could Be On The Move: The Bank Of Japan is scheduled to meet on Tuesday and give its rate decision. While it is extremely unlikely that the Bank will increase rates, the Bank is expected to raise their economic assessment of the country due to increased evidence regarding an export-led recovery. “Robust demand from overseas, especially from China, is driving Japan and the benefit is gradually spreading to households,” said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. “There won’t be any change to rates and other credit policy next week,” Sato said, adding that he anticipates the BOJ will raise its assessment. Should the bank offer up an improved forecast of the economy, it could have a positive effect on the yen helped to drive FXY higher. For more information on the ways to play the yen through ETFs, see Japanese Yen ETFs 101.
iShares MSCI Germany Index Fund (EWG)
Why EWG Could Be On The Move: Despite the lack of data releases in many of the developed markets around the world, Germany has several key releases this week which could move EWG. The country will release data regarding PMI services index, factory orders, industrial production, as well as information regarding the trade and current account balance of the country. Among the most important releases for the Germany economy will be the industrial production numbers and factory orders, since the country is so dependent on exports to fuel its economy (Germany is the second largest exporter in the world after China). Should these figures indicate that the German economy continues to strengthen on a weaker euro, EWG could be on the move.
iShares Barclays TIPS Bond Fund (TIP)
Why TIP Could Be On The Move: The government is scheduled to auction off its quarterly issue of 10-year TIPS at 1 pm EST. The auction, which is projected to be for $8.2 billion in TIPS, is slightly less than the first quarter offering of about $10 billion. That auction was well subscribed, with investors submitting bids worth 2.65 times the amount on offer. TIP could be in focus if the auction does not attract the same level of demand, suggesting that investors are not very concerned about inflation. On the other hand, if the bonds are in high demand it could signal that inflation is once again on investors’ minds helping to boost the demand for TIP. For other ETFs that can help to protect against inflation see Beyond TIP: 10 ETFs To Protect Against Inflation.
EWY: After the sinking of the South Korean naval vessel, all eyes were on the Korean peninsula to see if tensions between the two Koreas would escalate following the incident. Things have remained calm and EWY soared higher by close to 6% on the week.
PALL: Palladium investors were not disappointed this past week by the performance of the metal which soared throughout the week to finish up 7.6%.
VXX: Volatility declined marginally through the week as VXX sunk close to 4.2%. This came after a slew of earnings reports and data releases did nothing to shock the markets.
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Disclosure: no positions at time of writing.