The first few days of June have not been very kind to investors in a variety of sectors as extremely weak data and lowered expectations conspired to send equities sharply lower to start the new month. In addition to the ongoing Greek crisis, investors focused in on exceptionally poor data in the U.S. market which suggested to many that the economy is beginning to run out of steam. First, investors sold off securities on news that the ADP private jobs report showed an increase of just 38k, well below analyst estimates of 175k. Then, ISM Manufacturing data for May also came in very weak as the Index dropped to 53.5 from last month’s reading of 60.4. Lastly, the weakness was further confirmed by yesterday’s initial jobless claims report which showed that 422,000 Americans had applied for benefits, far above the key 400k level suggesting that investors are in for a gloomy summer.
Thanks to this weakness across a variety of data points, investors are likely to focus in on today’s important report which details the change in Non-farm Payrolls for the month of May. After the ADP report, many reevaluated their predictions for the non-farm reading and now the consensus appears to be 125,000 jobs created, sharply down from the three month average of 233,000 and roughly 50,000 below what analysts were expecting roughly a week ago. “We continue to expect a loss of 25,000 public-sector jobs but have reduced our forecast for private payrolls to 100,000 from 200,000,” said Julia Coronado, chief economist at BNP Paribas, representing one of the more bearish firms on the payroll data [see ETF Insider: Buying Opportunities After Panic Selling].
Due to this crucial data release and the wide range of predictions for the figure, investors should look for the PowerShares DB USD Index Bullish Fund (UUP) to remain in focus throughout today’s trading session. The fund tracks the Deutsche Bank Long US Dollar Index (USDX) Futures benchmark which is a ruled-based index composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. In terms of individual weightings, the fund is heavily exposed to contracts against the euro which make up close to three-fifths of the fund’s total assets. Additional large weightings go to the yen (13.6%) as well as the British pound which makes up 11.9% 0f total assets. As a result of this breakdown, how the fund does against the euro will be especially important for today’s trading session so any talk of the Greek bailout could help to move this fund as well. With that being said, the focus of today’s trading in UUP will undoubtedly be the employment report; if it shows that the ADP report from earlier in the week was an anomaly the fund could sink marginally on the day as traders will be more likely to embrace risky assets. If, however, more weakness is seen and traders grow increasingly wary of investing in this market, we could see a further flight to quality which would probably help UUP end the week on a strong note [see more charts of UUP here].
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Disclosure: No positions at time of writing.