Italy and Spain ETFs Sell Off As Debt Yields Rise

September 20, 2012 /

European stocks continued sliding Tuesday as the dollar strengthened against the euro on worries about Spain’s hesitation to ask for a full-blown bailout.

IShares MSCI Italy Index ( EWI ), down 3%, fell the most among nonleveraged foreign ETFs. This appears to be a normal pullback from overbought conditions after rising abnormally high above its moving averages last week. It’s vaulted 10.15% so far this month and its uptrend remains intact.

IShares MSCI Spain Index ( EWP ), down 1.67%, also pulled back from overbought conditions. It’s climbed 12.25% so far this month. The country’s deputy prime minister is still considering the terms of a bailout, which would unleash a European Central Bank bond-buying program.

IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, gave back 0.37%.

“The markets seem to be following the previous Q1 and Q2 (quantitative easing) scripts that saw the initial euphoric rise capped by profit-taking,” wrote Andrew Taylor, market strategist at GFT. “Equities and commodities will be looking for a solid wall of buying interest from which to build for moves higher.”

CurrencyShares Euro Trust ( FXE ), down 0.55%, retreated from a four-month high.

PowerShares DB U.S. Dollar Index Bullish ( UUP ), up 0.32%, gained ground as it found support at an 11-month low.

Early signs of economic improvement suggest the worst of the global economic weakness has passed and that the global markets could rally through year-end, according to Alejandra Grindal, senior international economist at Ned Davis Research.

The Organization for Economic Co-operation and Development’s composite leading indicators (CLI) fell in July to its lowest level since October 2009, but the size of the declines has been getting smaller over the past two months, Grindal wrote in a report.

“Unlike many other macro indicators, the CLI follows a clean and predictable pattern of declining at a slower rate, before eventually rising,” Grindal stated. “Our breadth indicators of the individual country CLIs have stabilized. Typically, country breadth deteriorates when the global economy is set to worsen, contrary to what’s been happening recently.”

The OECD is a 50-year-old organization involving 40 member countries that account for 80% of global trade. It aims to support policies to improve global economic and social well-being.”
IShares MSCI Emerging Markets Index (EEM), up 0.04%, closed nearly flat.

 

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