Three ETFs To Watch This Week: TIP, SMH, FXM

by on April 12, 2010 | Updated April 13, 2010 | ETFs Mentioned:

After plunging in mid-week trading, equity markets climbed back to finish up last week. Commodity markets were also in focus, as oil stayed flat and a sinking dollar caused gold to gain almost $50/oz. in trading over the course of the week. Bond yields also slipped with the benchmark 10 Year T-Bill falling by close to 15 basis points from its Monday high. This week looks to be heavy on crucial data releases as well as the beginning of earnings season, which could put many equity ETFs in focus. Below, we profile three ETFs in particular that could see an active week:

Rydex CurrencyShares Mexican Peso Trust (FXM)

Why FXM Could Be On The Move: The Bank of Mexico meets on Friday and will give its decision regarding rates. Currently, the benchmark rate is at a record low of 4.5% where it has been for the past seven central bank meetings. The Mexican economy experienced inflation of close to 5% from a year earlier and 0.71% when compared to February numbers. However, some analysts are dismissing this as a result of often volatile food and energy prices. Core inflation was at 0.36% for the month. “The relatively high March headline inflation reading was largely part of the salsa effect, as volatile ingredients like tomatoes and onions spiked up,” said Luis Arcentales, an economist with Morgan Stanley in New York in an interview with BusinessWeek, adding that it’s unlikely the bank will react to the report by raising borrowing costs. However, many believe that the Bank will be forced to raise rates either in the summer or at the very latest by the start of 2011. Look for the Bank’s language regarding any interest rate hikes to keep the peso and FXM in focus. The peso has been soaring against the dollar this year (see Three Currency ETFs Matching The Dollar’s Recent Gains to find out which other currencies have been performing well in 2010).

Merrill Lynch Semiconductor HOLDR (SMH)

Why SMH Could Be On The Move: Intel (INTC) reports earnings on Tuesday after the bell. The company is forecasted to produce earnings of 38 cents a share for the most recent quarter which is dramatically higher than the previous year’s figures which came in at 11 cents a share. Intel is often seen as a bellwether for the entire chip and computer manufacturing industry so positive guidance out of the company would go a long way in terms of easing investors fears regarding a double dip recession. SMH looks to be especially in focus because it has one of the highest allocations to INTC out of any ETF, with just under 24% of the total fund assets going to the firm(see Five Facts About HOLDRs Every Investor Must Know).

iShares Barclays TIPS Bond Fund (TIP)

Why TIP Could Be On The Move: March CPI numbers will be released on April 14th at 8:30 AM EST. The previous month saw the Consumer Price Index for urban consumers stay flat when compared to January numbers, but core CPI was up 0.1% for the month. TIP could be in focus if CPI levels are higher then expected, which could push demand for inflation-protected securities upward (for other ETFs that can help to protect against inflation see Beyond TIP: 10 ETFs To Protect Against Inflation). On the other hand, a weak inflation reading could lead to a TIP sell-off.

Last Week’s ETFs To Watch:

FXY: Japanese yen soared higher against the dollar, especially in mid-week trading which helped to push FXY up 1.3% for the week.

EWG: German markets experienced a volatile week as a slew of data releases heavily affected the prospects of EWG. The fund sank by over 3% from Monday to Wednesday and then soared back on Thursday and Friday to close the week unchanged.

TIP: After an issuance of 10 year TIPS, TIP rose a little over 1% for the week. The TIP issuance yielded 1.709% as solid demand from investors helped to boost prices and push down yields.

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Disclosure: no positions at time of writing.