Tuesday’s ETF To Watch: European ETF (VGK)

by on April 3, 2012 | ETFs Mentioned:

With the second quarter underway, investors will be glued to important economic data from around the world to get a feel for how markets could behave in the coming three-month span. One thing that many will hope for is the continued radio silence on European issues that dominated headlines for the better part of 2011. With constant worries over a Greek bailout and how the surrounding region would handle the crisis, stocks were held in limbo until fears subsided and investors shifted their gaze to earnings and strong economic data. Keeping fears of Europe at bay will be key in the next few months and one of the best ways to do that is to have strong data [see also ETFs That Should Be Commission Free But Aren’t].

Today will see the release of euro-zone producer price index (PPI). According to the U.S. Department of Labor, PPI is a program that “measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services”. A high PPI may signal inflation, which could force the European Central Bank to raise interest rates. On the other hand, a low result could suggest an economic slowdown and strike fear into traders and investors alike. 

This report will feature PPI results for the month of February, which are anticipated to fall to 3.5% from the previous reading of 3.7%. Note that given this prediction, even if PPI hits its target, a sell-off may ensue if the market believes that the economy is truly slowing down. However, a surprise jump could mean one of two things; either the economy is doing well, or inflation is starting to rear its head. Look closely for any commentary and guidance issued with the figure itself to determine how to properly digest the facts [see also 3 ETFs For The End Of Operation Twist].

In light of this major economic indicator, today’s ETF to watch will be the European ETF (VGK). This Vanguard product has gained over 11% on the year despite the early roadblocks that Europe set forth. The fund, which measures the performance of European equities, is home to over 450 securities with names like Nestle and Vodafone accounting for the top holdings. If PPI comes in low, look for VGK to take a hit in trading, but a high result could mean good news. Either way, the commentary released with the result will be equally as important as the figure itself, so be sure to look at both factors [see also How The VIX ETN Lost 50% In 48 Hours].

Disclosure: No positions at time of writing.