Fed Comments and Europe Contagion Drag ETFs | ETF Trends

Exchange traded funds (ETFs) started the week off  flat in early trading on the heels of last week’s strong gains. Fear about Europe’s debt troubles coupled with comments about the U.S. economy from Federal Reserve Chairman Ben Bernanke got things started on a slow note.

  • In Europe, finance ministers from 16 nations convened to consider a means of stabilizing the region and avoiding more costly bailouts. “Ahead of a meeting of European finance ministers today, disagreement still reigns amongst the group of what steps next to take with the size of the current facility and what to do with future debt restructurings,” wrote Peter Boockvar, equity strategist at Miller Tabak. Meanwhile, Moody’s downgraded Hungary’s debt rating, saying its fiscal policies would not be sufficient in the long term.  SPDR S&P Emerging Europe (NYSEArca: GUR) is one of the few Europe-focused funds trading higher, up 0.2% so far today; Hungary is 4.7%, while Russia is 64.5%.
  • Federal Reserve Chairman Ben Bernanke’s comments that the economy is still struggling to become “self-sustaining” without government help are weighing on stock prices. On “60 Minutes,” Bernanke argued that Congress shouldn’t cut spending or boost taxes, given how fragile the economy remains. He also said it could take four or five more years for unemployment, now at 9.8%, to fall to a historically normal 5% or 6%.  Despite the remarks, iShares MSCI USA (NYSEArca: EUSA) is up nearly 3% so far today.
  • Bernanke’s remarks had a marked positive impact in one area: the U.S. dollar. PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) is up nearly 1% as investors took reassurance that the Fed would do all it could to help the economy get back on track.
  • Investors in Asia were equally disappointed by the U.S. payrolls data released Friday and Bernanke’s comments. “Traders essentially viewed the disappointing jobs number on Friday in the U.S. as building another case for more stimulus measures. The Federal Reserve has indicated they may go into bat again, and the market looks like it wants more,” said David Taylor, markets analyst at CMC Markets in Sydney. iShares S&P Asia 50 (NYSEArca: AIA) is down nearly 1%.

Gregory A. Clay contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.