ETFdb.com analyzes the search patterns of our visitors each week. By sharing these trends with our readers, we hope to provide insights into what the financial world is concerned about and how to position your portfolio.
This past week our readers have been particularly preoccupied with the possibility of Britain exiting the European Union and the influence of such an outcome on financial markets. To this end, it is unsurprising that both the British Pound and United Kingdom equities are present on our list. Concurrent with Brexit fears, there are increasing worries about Eurozone’s economic outlook, with negative inflation boosting European bonds. German bonds took first spot on our list, while the page covering ETFs shorting bonds of various countries is last. In this mix of political and economic fears, platinum has also found its place.
German Bonds: Stimulus Working… for Bonds
German bonds have continued to rise this week as a set of fear factors boosted their safe haven appeal. Our page covering three ETFs offering exposure to the securities issued by the German government has seen its traffic rise as much as 645% this week compared to the week-ago period. The spike is hardly surprising, given that this Tuesday the benchmark ten-year bond yield fell into negative territory for the first time, raising many eyebrows. The lower the yield goes, the better the performance of long bond ETFs. PowerShares DB German Bund Futures (BUNL ) has risen nearly 9% over the past five days alone, extending year-to-date performance to as much as 73%.
The demand for German bonds has increased with the mounting political concerns that Great Britain will leave the European Union. The macroeconomic spillover effects from such an outcome are hard to predict, making these bonds highly attractive, despite yielding small negative returns over the next ten years. But the Brexit is an immediate worry that will dissipate once the referendum takes place. More troubling is a longer-lasting economic threat – deflation in the Eurozone. The bloc’s inflation figures for May came in at -0.1%, higher than in April, when it stood at -0.2%. The paltry inflation shows that exceptional monetary stimulus by the European Central Bank is not working, or else it needs to be tweaked. Mario Draghi, the Central Bank’s President, has repeatedly called on Eurozone members to help themselves through fiscal stimulus measures, but his plea has evidently fallen on deaf ears.
Going forward, many expect German bonds to continue to outperform, with analysts saying that ten-year yields could go further into negative territory. But there is a big risk, however, to holding these bonds. A small spike in inflation would trigger a drop in bond prices
United Kingdom: To Be in or to Be Out
Financial markets do not like uncertainty, particularly when it’s related to binary political outcomes. So it’s not a bit surprising that United Kingdom equities have been hit by the possibility of Britain leaving the European Union. Everyone is preparing one way or another for the decision that will be taken on the referendum on June 23, including our readers, who visited the page tracking UK equities in great numbers. The viewership has increased 253% this week, compared to the week-ago period.
Over the past five days, iShares MSCI United Kingdom (EWU ) has fallen 6.5%, bringing performance since the start of the year into negative territory, at about -6%.
The sell-off in equities has accelerated as the camp supporting an exit unexpectedly gained ground over the past few weeks, with a poll on Monday showing there were 7% more supporters for leaving the bloc than staying in. Other recent polls were largely mixed, but all of them were close, making for an uncertain outcome of the referendum and instilling fear into the markets.
British Pound: Fall Accelerating
The British pound has taken a beating, just like equities, due to concerns about the outcome of the much-awaited referendum Our page tracking ETFs with exposure to the pound saw its viewership increase 186% week-over-week. It should be noted that the pound took the first position in our trends list last week
Guggenheim CurrencyShares British Pound Sterling Trust (FXB ), one of the two long pound ETFs in our database, has fallen over 2% in the past five days, and is now down nearly 4% since the beginning of the year, reflecting investor concerns about the Brexit.
Analysts largely expect the currency to continue falling, possibly reaching record lows, if Britons elect to leave the bloc. However, a fair number of analysts still believe the “remaining” camp will prevail. Whatever the final outcome, it is sure the next two weeks will be as volatile as it can get – not only in the currency markets, but in equities and bonds as well.
Platinum: Cars Hit
Our page tracking ETFs offering exposure to Platinum has seen 182% more viewers this week compared to the week-ago period, probably reflecting concerns about the auto industry. Over the past five days, ETFS Physical Platinum Shares (PPLT ) has dropped nearly 2%, trimming year-to-date gains to 9%.
Platinum, one of the priciest commodities in the world, is used by investors to store value and hedge against uncertainties, just like gold. But unlike the shinier metal, which has no industrial use, platinum is heavily utilized in the car industry. So it has recently been hit by concerns surrounding car manufacturers, many of whom reported weaker sales for the month of May, with General Motors (GM) seeing its sales fall 18% compared to the same period a year ago. While ETFS Physical Platinum has fallen in the past five days, DGL PowerShares DB Gold Fund (DGL ) has jumped more than 2%. The two metals had moved broadly in tandem since the beginning of the year until last week.
Bond bears have not had many reasons to celebrate lately, as yields have continued to head lower on deflation threats all over the developed world. But the lower the yields go, the higher the possibility of a brutal reversal. Our page covering ETFs shorting bonds has taken last place in our weekly list, with a 160% growth week-over-week. For example, iPath US Treasury 10-year Bear ETN (DTYS ) has fallen 10% in the past five days alone, extending year-to-date losses to 40%.
On Wednesday, the Federal Reserve decided to keep interest rates unchanged, providing another boost to the US Treasuries. Everything seems connected, Fed Chair Janet Yellen cited the risk stemming from a potential Brexit as one of the reasons the bank stood still. A disastrous jobs report (38,000 additions in May compared with 159,000 expected) released on June 3 also made officials wary of making a move now, as well as deteriorating economic environment abroad.
The Bottom Line
This week, the possibility of a Brexit and its impact on financial markets has drawn our readers’ interest, with the UK equities and British pound both present at the top of our list. German bonds took first spot, as the ten-year bund yield ventured into negative territory for the first time. Platinum took fourth spot on the list because its performance stumbled this week on worries about the car industry, while ETFs shorting bonds took a further hit.
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.