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.
Financials Equities and Russia have taken the first two spots in our list this week, as both assets provided investors with reasons to worry and to hope at the same time. Elsewhere in the list, there are three unusual commodities – copper, wheat and lithium.
Financials Equities: Fed Boosts U.S. Banks, While Europe Struggles
When talking about Financials, it pays to specify the region where these financial institutions are based, given the widely disparate performance of North America and Europe. This divergence has attracted 130% more viewers to Financials Equities ETFs this week compared to the same period a week ago. On balance, Financials have underperformed the broad market. For example, iShares Global Financials (IXG ), an ETF containing 50% of international banks and 50% U.S. banks, has dropped 2.28% since the beginning of the year, although it has risen 1.67% in the past five days.
While European banks are still struggling with structural issues and low interest rates, their North American counterparts have increasingly shown signs they have overcome challenges, despite a nasty economic environment. Europe’s institutions are so badly positioned that, this past week, rumors emerged that Deutsche Bank and Commerzbank were discussing a tie-up in a bid to join efforts and halt a drop of their share prices. The rumor was quickly squashed by Deutsche Bank’s CEO John Cryan, but he suggested a transnational consolidation in the banking sector was needed for the players to remain competitive and profitable. The development is yet another sign that European banks are worryingly on the precipice, with Italian banks even worse positioned than Germany.
On the other side of the Atlantic, the picture is much brighter, although banks are still struggling with a low interest rate environment. iShares US Financials (IYF ), an ETF focused on U.S. banks, is up 4.23% since the beginning of the year, and has risen nearly 2% over the past five days, as bets of an imminent interest rate hike by the Federal Reserve are again on the table. The Fed’s Chair Janet Yellen and Vice-Chair Stanley Fischer signaled that policymakers could make a move for the first time since December 2015, citing an improved jobs market and upbeat economic data. As a result, U.S. banks have all rallied.
Russia: Mixed Signals
Russia is a tough asset to play these days, given the geopolitical uncertainty and mixed signals from the country’s government about its foreign policy. Adding to this mix is the deep connection to oil prices, which have been extremely volatile lately. Russia has taken the second spot in our list this week with a 92% increase in viewership. iShares MSCI Russia Capped (ERUS ) has dropped 0.92% over the past week, but the ETF remains up a staggering 25.43% since the beginning of the year.
Investors fear that a potential escalation of the Ukraine conflict could spark new sanctions from the European Union and other allies. Reports have emerged that Russia staged military exercises along the Ukraine border, prompting analysts to wonder whether Russia wants to renegotiate the Minsk peace agreement in its favor. Others fear a full-blown Russian invasion.
Away from Eastern Europe, Russia’s diplomatic exercises look promising. The country’s President Vladimir Putin will meet Japan’s Prime Minister Shinzo Abe this month to discuss the deepening of the economic ties between the two neighboring countries. An additional meeting is expected to be held in December. Another bright point is a potential deal with OPEC members on limiting oil supply in order to boost prices. On Thursday, Saudi Arabia said OPEC is close to reaching a common position on freezing output. A meeting in this sense will be held at the end of the month, and Russia is also expected to join the discussions.
Copper: China Weighs
After a small rebound this year, copper is again heading lower as demand from China is stagnating. The metal has seen its viewership rise as much as 62% over the past week, but its performance has been tepid. United States Copper Index (CPER ) has fallen 0.43% this week, extending year-to-date losses to nearly 4%.
Copper is widely expected to continue its downward slide, given the lack of demand from China and the excess supply. Reports recently emerged that Chinese warehouses are full and sending their reserves to other countries across Asia in a sign the stimulus measures by the Chinese government have run their course. Many see prices staging a more serious rebound in about two years, when demand will outpace supply because of a lack of investment in new mines.
Wheat: Bumper Harvest Sparks Selloff
Wheat ETFs have seen their traffic grow nearly 60% over the past week, as the commodity’s fall accelerated. For example, Teucrium Wheat (WEAT ) has tumbled 5.38% since last Thursday, extending year-to-date losses to 22.87%.
Wheat prices hit their lowest levels in ten years this week on reports of a bumper crop in the U.S. and Russia – now expected to be the largest exporters for the first time. In addition, Canada is set to produce its second-largest crop since 1990, while Australia’s harvest will be the biggest in five years. France is the only laggard, forecasting a large drop in crop as rains damaged plantations. All of this has put a downward pressure on wheat prices, but analysts believe futures will reach bottom soon, given that many areas will only break-even at current prices.
Lithium: Powering the Next Revolution in Energy
Lithium has seen its viewership rise 59% in the past week, closely behind wheat and copper. Global X Lithium (LIT ) has fallen 0.41% over the past five days, but year-to-date the ETF is up about 22%.
The commodity is considered by many to be the next oil, given its potential to fuel a transition to electric automobiles. Increased demand is expected to come from Tesla Motors, which is building a gigafactory to manufacture batteries for its recently announced affordable car. Demand is also coming from the wind and solar energy industries, which need storage capacity because electricity generation by these means is not stable.
The Bottom Line
This week the Federal Reserve has boosted the outlook for U.S. banks after signaling a rate hike could come as early as this month, while Russia has been in the spotlight for its mixed geopolitical messages. At the bottom of the list, both copper and wheat have continued to suffer from a supply glut, while lithium has edged higher on expectations of increased demand from the alternative energy industry.
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.