The G-7 meeting ended on a disappointing note following Donald Trump’s rejection of previously agreed summit communique. This week the focus will be on key events in the United States, Europe and Singapore.
The Federal Reserve and European Central Bank (ECB) are on track to gradually move away from the cheap money policies adopted to contain the trauma of the global financial crisis from 2010 to 2017. Meanwhile, President Donald Trump and North Korea leader Kim Jong Un are due to meet on Jun 12 for a planned summit on Sentosa island.
The Fed is highly anticipated to raise interest rates for the second time this year by 25 bps at its two-day meeting starting Jun 12. However, a surprise could be in store as the Fed could signal an early exit from its history-making program to reduce the level of bonds on its balance sheet. Additionally, the strong jobs report could compel the Fed to add one more rate hike in its forecast for this year (read: 4 Sector ETFs to Profit From Strong May Jobs Data).
The ECB is expected to end its massive bond purchasing program by the end of this year when it holds its policy meeting on Jun 14. The central bank has already halved its massive €60 billion per month asset buying program from January until at least the end of September (read: Winning ETF Bets if ECB Ends QE This Year).
The historic summit, which was called off previously, could bring peace between countries that have technically been at war for 68 years or swiftly end in new recriminations. Per North Korea state media, Kim and Trump will likely discuss denuclearization and could "establish a permanent and peaceful regime in the Korean peninsula” (read: Top and Flop ETFs as Trump Calls Off North Korea Summit).
Italy Woes Ebb
Italian stocks are poised to surge given that the new government has no intention to break up and will focus on reducing debt levels. The new economy minister vowed to keep the country in the Eurozone and boost growth through investments and structural reforms. This has erased all the political concerns that spooked the European stock market last month.
ETFs to Watch
Given this, investors should keep a close eye on the following ETFs that are especially volatile in the wake of these events:
SPDR S&P Regional Banking ETF (KRE - Free Report) : This ultra-popular bank ETF has been gaining on the anticipation of a second rate hike. The fund has surged 4% so far this month and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Regional Bank ETFs: What Investors Need to Know).
iShares MSCI Europe Financials ETF (EUFN - Free Report) : This fund provides exposure to the financial segment of the developed European market and is poised to surge from the end of the cheap money policy in Europe. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares MSCI All Country Asia ex Japan ETF (AAXJ - Free Report) : This ETF offers exposure to large and mid-sized companies in emerging and developed Asian countries (excluding Japan). It has been on investors’ radar ahead of a US-North Korea summit that might ease regional tensions and could provide some upside to the Asian stocks. AAXJ has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares MSCI Italy ETF (EWI - Free Report) : This fund offers exposure to a broad range of companies in Italy and carries a Zacks ETF Rank #3 with a Medium risk outlook. The new government policies will provide huge boost to this ETF.
SPDR Gold Trust ETF (GLD - Free Report) : Gold ETF is highly in focus this week. Though higher interest rates would diminish the yellow metal’s attractiveness since it does not pay interest like fixed-income assets do, any negative development in the US-North Korea summit would boost the safe haven’s demand. GLD has a Zacks ETF Rank #3 with a Medium risk outlook (read: 7 Exciting ETFs Ways to Profit From Ongoing Trade Spat).
PowerShares DB US Dollar Bullish Fund (UUP - Free Report) : Rising interest rates in the United States will pull in more capital into the country and lead to appreciation of the U.S. dollar. UUP is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies — euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The fund carries a Zacks ETF Rank #3 with a Medium risk outlook.
PowerShares CurrencyShares Euro Trust (FXE - Free Report) : The ETF seeks to track the price of the euro relative to the U.S. dollar. The value of the fund increases when the euro strengthens against the dollar. Stalling of ECB’s massive stimulus program will provide a lift to the euro and FXE, a Zacks ETF Rank #3 with a Medium risk outlook.
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