Trending on ETF Database: Central Bank Inaction Moves Markets

There was no central theme this week in our top trending pages, but the usual suspects—the U.S. dollar, gold, and the Japanese yen—are present on our list for their volatility as both the Fed and BoJ decided to stay still. The pharmaceutical ETFs page has topped our list with the greatest traffic increase; the industry as a whole has been in the spotlight lately with a series of drug-price gouging scandals. Finally, natural gas also makes an appearance.

Our pharmaceutical ETFs page has seen an increase in viewership of 115% over the past week, taking the first place in our trends list.

Pharmaceutical stocks have been at the center of attention lately for two contrasting reasons. First, a series of price-gouging scandals involving several firms, among them Valeant Pharmaceuticals, have dragged the entire sector down. Investors fretted that the U.S. government may soon target other firms. Second, there has been an attempt at continuing last year’s consolidation trend in the sector, which almost ended with a mega-deal between Pfizer and Allergan. The transaction was cancelled after the U.S. government changed its rules on inversions, making the big pharma merger less attractive. However, Pfizer’s CEO suggested this week that he will look at other acquisition opportunities after the company reported strong results for the first quarter. The consolidation wave may continue.

The PowerShares Dynamic Pharmaceuticals Portfolio ETF (PJP B), the largest ETF in the space, has fallen more than 3% in the past week as a string of companies issued underwhelming earnings results for the first quarter. Gilead Sciences (GILD), the second largest component in the ETF, and Eli Lilly and Co. (LLY) fall into that category, but many others have yet to release their financial reports.

The Japanese yen is continuing to defy gravity as it reached a fresh 18-month high against the U.S. dollar on May 3 at 105.51 Japanese yen for $1. Unsurprisingly, our page covering Japanese yen ETFs has seen an increase in viewership of nearly 70% over the past seven days.

The currency’s strength is posing problems to the country’s policymakers, who see its weakness as an important tool in their quest to raise inflation expectations and jumpstart morbid economic activity. However, on April 28, the Japanese Central Bank decided that no further action to ease monetary policy was needed, despite the yen’s ascent. This surprised many observers. As a result of the bank’s inaction, the yen strengthened further in the past week, with the Guggenheim CurrencyShares Japanese Yen Trust ETF (FXY B) jumping nearly 2%. Year to date, the long yen ETF extended gains to a staggering 12%.

While Japanese policymakers have watched the yen’s rise in terror, their U.S. counterparts have seen a decline in the dollar. The U.S. dollar has continued to weaken against all its major peers, including the euro and the yen, as investors have pushed further off a second rate hike by the Federal Reserve. Our readers flocked to our U.S. dollar ETFs page, which saw its traffic increase about 63% week over week.

The U.S. dollar’s weakness and its respective ETFs have caught many analysts wrong-footed. There could not have been a broader consensus among large investment banks that the dollar was heading for another great year in 2016 as central banks in the U.S. and the rest of the world were set to continue on their divergent paths. Yet so far the greenback proved all of them wrong; the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU A) has fallen more than 5% since the beginning of the year and almost 1% in this past week alone.

As dollar bull traders licked their wounds from their losing bets, analysts of all stripes attempted to explain the greenback’s fallout. One popular explanation is that real interest rates are the ones driving currency moves, not nominal ones as before. Real interest rates have been moving down in the U.S. and up in Europe and Japan despite their easing announcements and negative interest rates.

It is right to have the precious metal right behind the U.S. dollar on our list, particularly given the rising inverse correlation between the two asset classes lately. Viewership of our gold ETFs page increased 55% week over week, not far off from the U.S. dollar.

Gold ETFs have continued to perform well this week as the Federal Reserve decided not to raise interest rates following a soft string of economic data. Investor expectations of a rate hike have been pushed further off, propping gold and triggering a flight from the U.S. dollar. The SPDR Gold Shares ETF (GLD A-) has spiked 3% since Wednesday last week, extending year-to-date gains to as much as 20%.

Going forward, the precious metal’s performance will greatly depend on the U.S. dollar and the Federal Reserve.

Natural gas ETFs are struggling to find a clear direction as both bulls and bears are firmly holding their ground. Viewership of our natural gas ETFs page increased nearly 45% week over week, suggesting the funds may represent an attractive investment opportunity for some investors.

But fundamentals for the fossil fuel are mixed. This week, forecasting agency NatGasWeather predicted that demand for the natural gas will be weak over the coming weeks since cooler temperatures will drive down heating needs. Meanwhile, supply is not abundant, with “production continuing to fall”:http://www.eia.gov/naturalgas/weekly/. Still, bears are pointing out that natural gas storage levels are near record highs.

The mixed attitude towards the direction of natural gas has produced mixed performance for the ETFs. The United States Natural Gas Fund (UNG B-) has edged slightly up 0.5% in the past week. Year to date the fund remains deeply in negative territory, down 20%.

Central bank inaction has stoked volatility in three asset classes present in our trends list this week. The U.S. dollar declined, while gold edged up as the Fed appeared dovish at its meeting last Wednesday. At the same time, the Japanese yen strengthened when the Bank of Japan surprised markets by withholding any new stimulus measures. Also, pharmaceutical ETFs took first place on our list with drug-price scandals grabbing the headlines. Finally, natural gas took last place as it moved sideways.

By analyzing how you, our valued readers, search our property each week, we hope to uncover important trends that will help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of the week, we’ll share these trends, giving you better insight into the relevant market events that will allow you to make more valuable decisions for your portfolio.