Calm Before The Storm

by on June 27, 2011 | ETFs Mentioned:

Although the Greek crisis tapered off to finish the week, plenty of risks remain in the overall economy, causing stocks to sink broadly across the board. Italian debt concerns are now coming to the forefront and more doom and gloom over the American economy– not to mention the debt ceiling– is continuing to plague equities of all sizes and sectors. Nevertheless our picks for last week managed to, on average, beat out the market by close to 50 basis points, giving investors a decent return despite high volatility and extreme levels of uncertainty.  With this backdrop, we highlight some of the other key data releases this week as well as few possible trades that investors could make this week in order to hopefully beat the market once again.

Weekly Outlook

This week is surprisingly light on data as no major central banks are meeting and earnings reports remain scarce to say the least. With that being said, there are a few key data releases that investors need to keep their eyes on in certain sectors of the marketplace, as these reports could definitely move some currencies or sector ETFs. In addition to data, investors will likely focus in on two things; the ongoing Greek crisis and the winding down of QE2 in the U.S. In Europe, investors will focus in on a key vote this week in which the Parliament decides on further austerity measures for the country. As of now, the margin is razor thin and it could swing in either direction; potentially sealing the fate of the highly-indebted nation. Meanwhile in the U.S., QE2 ends on Thursday and it remains to be seen how the bond market will react without massive purchases from the Fed. It appears as though the Fed lucked out in its timing as safe haven demand could be especially high in the next few weeks given the ongoing risks in the global market, potentially softening the blow of the end of quantitative easing.

  • Food ETF (EATX): Although prices for key agricultural commodities have come down somewhat in the past few weeks, they still remain elevated when compared to the 2010 period. As a result, investors who are looking to see how these added costs have impacted food producers should pay close attention to General Mills’ earnings report later this week. Despite worries over rising commodity prices, analysts are predicting the company to post EPS of 52 cents, a nearly 27% surge from the year ago period. This report could also have a huge impact on other, smaller companies in the sector, potentially signalling how they will report in the weeks ahead as well. While there are few food-focused ETFs on the market today, we believe that EATX will be most impacted as GIS receives one of the top five allocations in this relatively new fund.
  • Rydex CurrencyShares Canadian Dollar Trust (FXC): Although Canada has a relatively well diversified and strong economy, its currency has struggled as of late thanks to weakness in oil prices and other key commodities. However, some key data releases this week could change the recent direction of FXC or continue the fund on its downward path. On Wednesday, CPI results for the country are to be released, potentially signalling how likely the country’s central bank is to raise rates in the near future. Additionally, investors should also watch out for the GDP release for the country on Thursday as this will also demonstrate how the Canadian economy is holding up during these increasingly uncertain times, potentially moving FXC in the process.
  • iShares MSCI Italy Index Fund (EWI): Late last week, the major Italian banks were rocked by worries of a possible downgrade by Moody’s, as the ratings agency placed the long-term debt and deposit ratings of 16 banks and two government-related institutions up for review. This pushed the country’s largest bank, Unicredit, down by almost 8% at one point in Friday trading, reigniting fears over the health of the Italian economy, especially given the ongoing risks in the other PIIGS member states. Should worries bubble over in regards to Greece, bond traders could turn their eyes to Italy, potentially making this week a very important one for EWI and other Italian-focused securities.
  • China Industrials ETF (CHII): Chinese Premier Wen Jiabao crushed fears over escalating inflation last week when he said that without a doubt Beijing will be able to control price increases while maintaining robust growth.  Although inflation looks to be higher in June, officials look for price increases to ease in the second half of the year, a statement that sent Chinese ETFs such as CHII soaring to close out the week. While bullishness may have returned to Chinese stocks for the time being, Friday’s PMI Manufacturing Report could help to either solidify this recent burst, or push the country back lower to start July. While this report looks to impact most Chinese sectors, we believe that CHII, with its focus on industrials, will be among the most impacted, making this fund one that traders need to keep their eyes on to finish the week.
  • ETFS Physical Platinum Shares (PPLT): PPLT, like many commodity ETFs, has had a rough couple of weeks thanks to a strengthening dollar and continued worries over demand. As a result, the white metal is down close to 5.5% so far this year including a nearly 7.5% loss in the past two weeks alone. Yet, fortunes could turn around for the metal as early as this week when the government releases its report for automotive sales in the month of June on Friday. Close to half of all the world’s platinum goes into catalytic converters for cars so robust automotive demand is seen as a positive for the metal. Should auto sales beat estimates to close out the week, look for PPLT to surge and eat into its year-to-date losses.

Trading Ideas

This week could be another volatile one in stock market across the world and could potentially decide the fate of the common currency in Europe. If the Greek Parliament rejects further austerity measures, something that is certainly possible at this juncture, it could lead to total chaos in the markets and will probably lead to a Greek default. As a result of this reality, many of trades for this week need to be monitored extra closely as high levels of volatility seem likely to stalk the market at every turn. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques: 

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