Although equity markets stayed rangebound for much of the holiday-shortened week, markets experienced quite the tumble on Friday as major indexes slumped by more than 3.3%. This steep slide put markets in the red for the week and continued a brutal stretch that has sent markets around the world lower and brought back memories of the financial crisis of 2008. Two key events helped to sink markets on Friday and could stretch losses into early next week as well. Domestically, investors cringed at the May jobs report, which showed that a paltry 41,000 private sector jobs were created and that census related work account for virtually all of the job growth. This information suggested to many that any recovery was likely to be muted as best and that the unemployment rate was unlikely to dip below 9% anytime soon (see Retail ETFs Hammered By Jobs Report).
Meanwhile in Europe, investors fled many central and eastern European markets as Hungarian officials reported a grave economic situation and brought up the possibility of default (see Turmoil In Hungary Sends Austria ETF Reeling). This possible continuation of the sovereign debt crisis, as well as weak job numbers, sank the markets to close out the week. For the upcoming week, more key central banks will be meeting and Europe is likely to remain in focus, especially considering the lack of key earnings announcements scheduled. Additionally, look for all eyes to be on South Africa as the first World Cup on the continent gets underway this weekend. Below, we profile three ETFs that could seen an active week:
CurrencyShares Euro Currency Trust (FXE)
Why FXE Could Be On The Move: The European Central Bank is scheduled to meet on June 10th in order to give its decision on rates. There is essentially a zero percent chance of the bank raising rates given the recent turmoil in Europe as well as the new problems appearing in Hungary. However, it will be interesting to hear Trichet’s comments regarding the current state of the common currency. The euro has been struggling as of late and has breached the $1.20 mark against the dollar, a figure that would have been unheard of at the start of the year. Furthermore, some are calling for the ECB to extend its liquidity provisions beyond June; however, others point out that the bank may have as little as 50 billion euros in capital, putting it in a tough spot in terms of what it can do next. Look for the euro to be in focus should Trichet announce any major policy moves at the meeting (see Three ETFs For Euro/Dollar Parity).
Shares MSCI Netherlands Index Fund (EWN)
Why EWN Could Be On The Move: In addition to the ECB meeting mentioned above, there is a Dutch Parliamentary election scheduled for June 9th. Many are calling for deep spending cuts in the country totaling roughly $20 billion a year. However, such severe austerity measures may be difficult to accomplish with a highly fractured electorate that has the top two parties polling at 25% and 19% of the vote. Look for EWN to be in focus as at least ten parties could win seats in the House, setting off a mad scramble to form a coalition. If a coalition is formed quickly, it could be good news for EWN. If, however, a stalemate appears likely, the news could be bearish for the fund and the country as a whole (see EWN’s fact sheet).
iShares MSCI Brazil Index Fund (EWZ)
Why EWZ Could Be On The Move: The Bank of Brazil is scheduled to meet on June 9th in order to give its decision on interest rates. The bank has not met since April 28th when it rose rates by 75 basis points to 9.5%, and much has happened in the global economy since then, putting this prominent emerging market into focus. In a survey of 16 analysts tracking the bank’s moves, 15 are predicting a hike in rates of another 75 basis points which would push the benchmark rate up to 10.25%. This is likely because the inflation rate is approaching 75 basis points above the target of 4.5%, so look for EWZ (as well as the Brazilian real) to be in focus when the Bank meets later this week (also see Five Head-To-Head ETF Matchup To Keep An Eye On).
GXG: The Colombia ETF rose modestly after Juan Manuel Santos won the first round of the Colombian presidential election, beating Antanas Mockus by a surprisingly-large margin of 46.5% to 21.5%. However, because Santos did not achieve a 50% majority, he and Mockus will have to compete in the runoff election on June 20th. GXG finished a solid week despite the turmoil rising by roughly 2.2% (see holdings of GXG here).
RTH: As expected, retail ETFs were in focus directly following the May jobs report. Although the unemployment rate modestly declined, it was largely due to temporary government jobs as well as people giving up looking for work. This news sent RTH, as well as a host of consumer discretionary ETFs, sharply lower; RTH posted a loss of 3.8% on the day (see technical analysis of RTH here).
EGPT: As expected, the National Democratic Party won handily in the elections for the Shura council, the upper house of the Egyptian Parliament. The party won 60 seats leaving just four for other parties. EGPT stayed rangebound for much of the week, but slumped along with the rest of the market on Friday to finish the week down by roughly 3%. (see fundamentals of EGPT here).
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Disclosure: Eric is long EWZ.