This past week was one of the most volatile in recent memory as traders digested news of an S&P downgrade of American debt and continued uncertainty in the euro zone. Markets oscillated by more than 4% on most days with sharp changes in the final hour of trading being pretty much the norm throughout the week for most well-known equities. Thanks to this turmoil, the original safe haven, gold, added close to $100/oz. in the first three days of trading this week only to see its price retreat from the $1,800/oz. mark to close the week as margin hikes and demand for risky assets limited the yellow metal’s appeal. Investors also saw wild swings in the Treasury market as well, as yields slumped across most maturity levels as investors piled into American government debt to wait out the storm, despite the loss of the AAA credit rating by the world’s most famous ratings agency. In fact, yields on the Ten Year fell from about 2.6% at the start of the week to nearly 2.0% in Wednesday trading, although yields were trending in the 2.30-2.4% range to finish out the period, as some traders started to go bargain hunting in equities and reconsider the ultra-low yields found in the sovereign debt market.
This week, investors are likely to keep their attention on the European debt crisis as the situation could very easily spiral out of control in the coming days, leading to more volatility across the markets. Beyond this drama, many will also focus in on a few key earnings reports in the U.S. which could help to move the markets in some sectors. This is especially true in the retail segment as firms such as Wal-Mart and Target both give their quarterly updates, possibly signaling how the American consumer is holding up in this increasingly weak economy. In addition to earnings, it looks to be a week of CPI releases across much of the developed world as Britain, Canada, Germany, and the U.S. all announce the rate of price increases in their respective economies for the most recent quarter. With this backdrop, investors should look for the following three ETFs to be in for an active week:
SPDR Homebuilders ETF (XHB)
Why XHB Will Be In Focus: Thanks to some conflicting data on the U.S. economy– manufacturing data and trade deficit figures were weak but unemployment claims dipped below 400k– investors will likely look to the latest report from the beaten down housing sector to help clarify if we are headed for a double dip recession. Later this week, both existing home sales and housing starts will be released, not to mention a release of the housing market index later today. Thanks to these data reports, a better picture of the housing situation could be realized, potentially clarifying if the key corner of the market is headed for further weakness. Housing starts are expected to fall by about 20,000 to 608,000, but existing home sales are expected to rise to 4.94 million, a 3.5% change m/m. If investors see any deviation from this trend, XHB could be a big mover on the week as the fund contains both homebuilders and other related firms such as Home Depot, Bed Bath & Beyond, and a slew of additional retailers and service providers that all rely on robust strength in the housing market to drive earnings [ETFdb Category Kings: Best Performers From First Half Of 2011].
iShares MSCI France Index Fund (EWQ)
Why EWQ Will Be In Focus: Despite being in a relatively good financial position, especially when compared to the U.S., traders have begun to pounce on France as the next nation that could see a downgrade from AAA status. Traders have focused on the nation’s banks as the Achilles heel of the country since the financial institutions have loads of exposure to Spanish and Italian bonds which are dangerously close to exploding. French officials have managed to defend the country’s fiscal position and have vowed to reach deficit targets no matter what, helping to ease fears of bond holders across the board. Nevertheless, a recent ban on short-selling could spoke market participants as it could signal, much like in 2008, that there is grave trouble underneath the surface for these financial institutions. Thanks to this, investors should look to this volatile French ETF from iShares to have an active week as investors obtain more information regarding this budding crisis in Europe’s second largest economy [Four Volatile ETFs For Active Traders].
iShares Global Inflation-Linked Bond Fund (GTIP)
Why GTIP Will Be In Focus: Although inflation remains muted across much of the developed world, pockets of price increases are beginning to appear in some economies thanks to ultra-low interest rates across the board. Investors look to get further clarification on these trends when a number of key countries give their CPI updates later this week, including the U.S., Germany, Great Britain, Canada, and the euro zone as a whole. The rate of price increases looks to decline in the North American sphere, but could remain elevated in key markets in Europe. The year-over-year change in Britain was recently at 4.2% while the ECB as a whole saw a recent reading of 2.7%; both above the targets of their respective central banks. Due to this, both the ECB and the BOE could face more pressure to raise rates but may be unable to do so in light of the weak economic situation. As a result, funds like GTIP which track a global basket of inflation-linked bonds, could see more inflows or activity if it appears as though inflation is still an issue in some key markets [Inflation Special: 25 ETF Ideas To Fight Rising Prices].
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Disclosure: No positions at time of writing.