This past week was an extremely rough one for stocks across the board as fears over a global slowdown and worries over European debt woes sent markets tumbling around the world. Although Congress did manage to briefly come together in order to resolve the debt ceiling issue– at least in the short term– markets sold off anyway thanks to fears over harsh austerity measures and continued weakness on the employment front. Nonetheless, stocks managed to bounce back in Wednesday trading as some bought up shares thanks to relief over the lowered political risk and bargain buying after an eight-day losing streak. However, this relief was short-lived as markets crashed in Thursday trading as most major benchmarks were down at least 4% on the day, in large part due to more economic fears. After this horrific day, many assumed that trading would rise on Friday as investors sought out blue chip bargains throughout the market. Yet, even with a better-than-expected jobs report stocks experienced more volatility to close out the week, increasing the odds of a double dip recession in the very near future, especially given the nearly 7.2% loss for the S&P 500 over the past five days.
This week, investors are likely to focus on the increasingly uncertain situation in Europe as yields continue to spike in major economies in the periphery of the currency bloc. Intermediate term debt in both Spain and Italy was yielding over 6% recently while bond auctions last week received lackluster interest from investors suggesting that bond prices could continue to slump for the sovereign debt in both of these trillion dollar economies. Investors will also eagerly await news from Ben Bernanke and the rest of the FOMC when the group meets on Tuesday to discuss rates. While no one is predicting a rate hike, all investors will be listening in to Bernanke’s press conference for what his thoughts are on the recent stock market slowdown. On the earnings and data front, things look to be pretty slow over the next few days as only a handful of companies look to give their quarterly reports. Data looks to be even more sparse as U.S. releases are limited to consumer numbers while Europe has the Bank of Norway and some inflation data in both Germany and Britain. With this backdrop, investors should look for the following three ETFs to be in for an active week:
Global X FTSE Norway 30 ETF (NORW)
Why NORW Will Be In Focus: With the exception of a few days here and there, the Norwegian currency, the krone, has been rapidly appreciating against the U.S. dollar, as the exchange rate has fallen from about 6.2 this time last year to its current level, around 5.5. While this hasn’t been as sharp a drop as some other developed market currencies– notably the franc and the yen– it does represent a large move for the national currency that could make Norway’s exports less competitive on the global stage. Given that both Switzerland and Japan have intervened in recent days in order to weaken their currencies, one cannot rule out that Norway is planning a similar thing when the country’s central bank meets later this week on Wednesday.
Currently, rates are 2.25% in the Nordic country thanks to a 25 basis point move in May, a shift that helped to push the krone/dollar exchange rate down from 5.6 to 5.35 in a matter of days. So while an intervention is certainly possible, recent weakness in oil prices could force the Norges Bank to hold off for the time being. Norway is one of the main oil exporting countries in the world and prices for the vital commodity are down close to $10/bbl in the last week alone. Thanks to these heavy losses for the country’s main export, the future of the intervention in the currency markets seems uncertain and those who have bought up shares in NORW should pay particularly close attention to oil and the central bank this week [Three Forgotten ETFs To Play Oil].
iShares Barclays 7-10 Year Treasury Bond Fund (IEF)
Why IEF Will Be In Focus: Thanks to the raising of the debt ceiling in the 11th hour, as well as continued economic uncertainty around the world, investors have resumed their flight to safety and are piling into U.S. government bonds of all maturity levels. The benchmark 10-Year note is currently yielding less than 2.5%, a more than 30 basis point plunge in a matter of days, underscoring just how widespread fear is in the marketplace. Thanks to these rising concerns, investors should look for the FOMC meeting later this week to obtain more clues about the path of the bond market in the coming weeks. Given that the debt deal signals that further fiscal stimulus is off the table, Bernanke may decide to take up a campaign for more monetary easing instead to boost the economy. Since interest rates are already at rock bottom levels, the only alternative is further QE or more broad asset purchases in the open market, so signals by Bernanke regarding this could definitely move markets this week. While all levels of American government debt will likely be impacted by this meeting, IEF represents a nice balance between short and long term debt and should be the go-to choice for those looking to trade around this important session [see ETF Insider: Bullish Abroad, Defensive At Home].
Global X Silver Miners ETF (SIL)
Why SIL Will Be In Focus: Although safe haven demand is rising in light of global economic woes, a strong dollar has been absolutely devastating for silver prices over the last few days. Prices of the precious metal have fallen by close to 4.5% in the past week alone as investors have sought safety in T-Bills instead of gold and silver. Since mining companies often act like a leveraged play on the price of the underlying metal, events have been even worse for SIL as the fund has plummeted by close to 8.5% in the same time period. Investors will likely look to see if this trend continues this week, especially after the FOMC meeting, in order to decide if this represents a longer term correction for silver miners or if it is pointing towards an excellent entry point. Additionally, investors will likely focus in on Pan American Silver Corp’s (PAAS) earnings report which is due out after the bell on Wednesday in order to see how recent volatility in silver prices has been impacting the industry. PAAS is one of the top five components in SIL so any shifts in earnings expectations or outlook could have a huge impact on this popular Global X fund as well [Three ETFs For $50 Silver].
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Disclosure: No positions at time of writing.