ETF Insider: Euro Woes Weigh On Earnings

Stoyan Bojinov
January 16, 2012

Bullish momentum propelled stocks higher last week, although the French credit downgrade drama on Friday was enough to rekindle Euro zone woes and spark a broad-based sell-off before the weekend. Standard & Poor’s credit downgrade of France and Austria sparked volatile trading to start the week across European and Asian markets; investors on Wall Street will have to wait until tomorrow to readjust their portfolios as U.S. equity and bond markets are closed today in observance of Martin Luther King Jr. Day.

Weekly Outlook

The coming week will be stacked with economic data releases both at home and on the international front. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • iShares FTSE China 25 Index Fund (FXI): Chinese GDP comes out late Monday evening, which means this ETF may experience volatile trading at Tuesday’s opening bell. Analysts are expecting for economic growth in the booming Asian powerhouse to come in at 8.7% year-over-year, versus the previous reading of 9.1%. 
  • CurrencyShares British Pound Sterling Trust (FXB): United Kingdom CPI comes out early Tuesday morning before Wall Street opens, which may lead to volatile trading for FXB. Analysts are expecting for inflation to come in at 4.2% year-over-year, versus the previous reading of 4.8%.
  • CurrencyShares Euro Currency Trust (FXE): Euro zone CPI is also slated to hit the street on Tuesday morning, which will certainly bring attention to the debt burdened currency bloc. Inflation is the regions is expected to come in at 2.8% year-over-year, versus the previous reading of 3.0%. 
  • SPDR Homebuilders ETF (XHB): Investors will turn their attention to the U.S. housing market as the latest home builders’ index comes out. XHB may experience an increase in trading volumes as investors react to the report, with analysts expecting the figure to come in at 22, versus the previous reading of 21. 
  • IndexIQ Australia Small Cap ETF (KROO): Australian equities, particularly small caps, may experience volatile trading after the latest unemployment report is released on Wednesday evening. Analysts are expecting for the unemployment rate to come in unchanged at 5.3%.
  • PowerShares DB USD Index Bullish (UUP): The U.S. dollar may come under pressure on Thursday as the latest domestic CPI report is released. Analysts are anticipating for inflation to simmer down to 3.1%, versus the previous reading of 3.4%.
  • iShares MSCI Canada Index Fund (EWC): Canadian equity markets may take cues from the CPI release on Friday as investors react to the latest inflation report. Canada’s CPI is expected to come in at 2.8%, a slight down-tick from the previous reading of 2.9%.

Euro zone woes don’t appear to be going away anytime soon. Although there have been several encouraging developments overseas, the currency bloc remains in a dire, financially fragile state; lawmakers will need to flex more political and monetary muscle in order to restore confidence and reignite optimism. Amidst the lingering woes stemming from overseas, U.S. economic data releases will continue full steam ahead as earnings season kicks into higher gear this week. Below, we have highlighted three technical trading ideas for the upcoming week. Note that most of these recommendations require active management as they are only relevant for a very short period of time. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Actionable ETF Idea #1: Short RTH
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