This past week was a brutal one for equity markets as a wave of selling crushed sectors across the board. The benchmark S&P 500 index saw its value decline by nearly 6.5% on the week, marking one of the roughest five day stretches in recent memory. Generally speaking, this decline was thanks to investors being pretty disappointed with the Fed’s new response to the markets as many were hoping for more of a boost than the $400 billion for “Operation Twist”. Due to this lack of more stimulus from the Fed, as well as continued turmoil in Europe, many investors capitulated and headed for safer assets such as Treasury bonds instead. Yet, even traditional safe havens, such as gold and silver, saw heavy selling pressure as well; GLD finished the week lower by 9.2% and SLV was down 23.9% in the same time period. In other words, it was a pretty rough couple of days all around leaving those invested in volatility ETPs or Treasury funds as the only winners in the devastating week.
This week, investors will likely focus on broad geopolitical events and especially news out of Europe to move the markets over the next few days. There are no central bank meetings over the next five days and the amount of earnings reports are also very sparse to say the least. On the data front, investors will likely zoom in on durable good orders on Wednesday, German CPI on Thursday, and personal income on Friday. In addition to these points, investors should also note that GDP reports from both the U.S. and Canada are also due out this week, helping investors to get a better hold on the current environment in North American markets. With this backdrop, investors should look for the following three ETFs to be in for an active week:
iShares MSCI Germany Index Fund (EWG)
Why EWG Will Be In Focus: European markets have been rocked over the past few weeks as worries over a Greek default reached a fevered pitch. Arguably the most important creditor country in this environment is Germany, the powerhouse of Europe. However, the country is starting to buckle under the massive expectations as consumer and business confidence has slumped in recent weeks to troubling levels. The German ZEW Survey came in at -43.3 while the both the manufacturing and Services PMI for the nation came in just above the key 50.0 mark, suggesting further weakness may be ahead for the country. Given these weakening fundamentals, along with the poor macroeconomic environment, it could be a very interesting week for this popular ETF. The fund has declined by about 8.8% in the past week and nearly 31.3% in the past quarter so investors will likely be looking for a bounce (finally) in German companies, but a Greek default could cause shares to continue to push towards 52 week low levels.
IQ Canada Small Cap ETF (CNDA)
Why CNDA Will Be In Focus: When it comes to developed markets, few countries are truly considered commodity dependent nations except for a select few such as Australia, New Zealand, and Canada. America’s neighbor to the north has been particularly impacted by the events of the last week as the country is one of the more heavily impacted by changes in oil prices both for its currency and its economy. In fact, as oil prices declined by nearly 9% in the week, funds representing the country that are heavy in natural resource firms, such as CNDA, were among the hardest hit; the IndexIQ fund declined by nearly 15.5% in the past five days, pushing the product to a 21% loss over the past quarter. In light of these heavy losses, as well as the shaky fundamentals of the global economy, many investors will likely pay special attention to the Canadian GDP report later in the week. Analysts are currently looking for 2.3% in yoy terms and 0.3% in month-over-month figures so an expectations-beating performance on these two marks will go a long way in terms of CNDA turning things around after last week’s terrible performance [see ETFs For Forgotten Asset Classes].
Market Vectors Indonesia Index ETF (IDX)
Why IDX Will Be In Focus: The past week has been an extremely tough one for emerging markets as the ‘risk-off’ trade was in full swing across the globe. Broad emerging market ETFs, such as EEM or VWO, both experienced double digit declines on the week as the two giants each saw declines exceeding 11%. Meanwhile, certain individual countries saw extreme volatility as well, most notably Indonesia. This key emerging market was one of the better performing developing countries on the year until a few days ago when selling pressure finally crushed the budding nation. Over the past five days, IDX lost close to 17% including a double digit move to the downside on Thursday and a nearly 5% gain on Friday. Thanks to this extreme volatility, investors should definitely keep an eye on this fund this week to see if IDX will continue its longer-term trend higher or if this is the start of a new cycle in which Indonesia is one of the market leaders on the downside [Talking Indonesia ETFs With Van Eck's Ed Kuczma].
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Disclosure: Long EWG, IDX.