This week saw markets battle to make gains, as the majority of trading days ended relatively flat thanks to a lack of market moving news. News of an extension of the Bush-era tax cuts has been toying with markets all week as investors anxiously await to see if the deal between President Obama and the Congressional Republicans will be able to push through the Democrats’ roadblock. If the bill is passed, it will likely boost consumer spending and growth, but at the same time will add to our already-large deficit, as the government will not be funding the tax break with spending cuts but with debt instead. An addition to the deficit could be dangerous for the U.S. as it was just released that the November federal budget deficit was the highest on record, coming in a $150.4 million, 25% higher than for the same time last year. This fear helped to boost Treasury yields across the board, giving T-Bills one of their worst weeks in more than a year.
This week will be slightly more active in markets, as a number of major central banks meet and a variety of government data points will likely put a number of industries under the spotlight. Investors will hope to see December break into a definitive trend this week, as horizontal markets have been difficult to play as data has pulled the market between two extremes for much of the last few months. However, with the S&P 500 trading at its highest level this year, it is not unreasonable to think that if solid figures do not come out of the data points that December may put a cap on a tumultuous 2010 [see also ETFs For The Forgotten Asset Classes]. With this backdrop looming over the markets, we highlight three ETFs that could be in for an especially volatile week.
Rydex CurrencyShares Swiss Franc Trust (FXF)
Late in the week the Swiss National Bank will be reporting their interest rate decision as well as its 2011 growth outlook for the nation. For the most part, economists predict that the bank will hold rates at 0.25%, similar to the U.S., but many analysts are also beginning to predict a rate hike in coming months. A major Swiss business group predicted a strong GDP growth of 2% in 2011, which many believe will force the bank to raise rates to a more moderate level in early 2011. Like many developed economies, the Swiss have not changed their rates since 2009, and will likely hold them as the year closes as the bank aims to “pursue a very expansive monetary policy” writes Catherine Bosley. With this major bank report coming on Thursday, the Swiss Franc ETF, which tracks the value of the franc against the dollar, will be important to watch as the country’s national bank releases this key data and forecast for the following year.
Merrill Lynch Wireless HOLDR (WMH)
WMH will be an important fund to watch this week as one of its major components will be reporting their most recent quarter’s earnings late in the week. Research In Motion, the Canadian company perhaps best known for its ever-growing lines of BlackBerry smart phones, will shed light on its most recent quarter’s performance and the hyper-competitive smart phone market. Analysts have predicted the firm to bring in EPS of $1.64 with revenues nearing the $5.4 billion mark. RIMM has surpassed its last two quarterly predictions and looks to continue that trend this week. The company makes up over 10% of WMH, so look for this ETF to be a big mover late in the week [see also Three ETFs For Smart Phone Exposure].
Industrial Select Sector SPDR (XLI)
This week, the U.S. government will release its Industrial Production report on Wednesday, which will comment on economic growth in the country, specifically in the manufacturing of consumer goods, business equipment, construction supplies, and other capital assets. This report will not only point to strengths or weaknesses in the manufacturing sector, but it will also comment on the resource utilization of major industrial companies. XLI tracks the Industrial Select Sector Index, which includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. Because this ETF encompasses such a wide portion of the industrial sector, it will likely be a big mover in the latter half of the week, after the report comes out. Should the report signal an uptick in activity, it could suggest a rebound in manufacturing which would be great news for components of XLI who may finally be on the cusp of a recovery after the lean period directly following the financial crisis [see also Sector ETFs During The Correction: XLE Slides, XLP Holds Ground].
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Disclosure: No positions at time of writing.