European and emerging market ETFs soared Friday, following
through on strength sparked by the European Central Bank plan to
buy bonds from indebted eurozone countries. The dollar's plunge
on a weaker-than-expected jobs report also bolstered gains earned
in foreign currencies.
IShares MSCI EAFE Index (
), tracking developed foreign markets, gapped up 1.46% to 53.24
-- a four-month high. It broke out of a textbook cup-with-handle
base with a 53.02 buy point. It's trading within 4% of its
IShares MSCI Italy Index ETF (
), up 2.99%, and
MSCI Spain Index ETF (
), up 1.87%, both soared to five-month highs.
IShares MSCI Emerging Markets Index (
) jumped 2.25% to 40.62 as it regained its 200-day moving
IShares FTSE/Xinhua China 25
Index ETF (
) surged 2.66% to 33.60 after the Chinese government announced a
major infrastructure investment plan to help spur economic
growth. The latest export data from Asia show exports to the
European Union fell 15% year-on-year in July. Japan's shipments
to China fell 12% year over year.
"It is a battle between rapidly deteriorating fundamentals and
the belief that central bank action will boost equity prices
through increased liquidity," Dick Green, founder and chairman of
Briefing.com, wrote in a note. "The central bank argument is
winning for now, but eventually the fundamentals have to improve
or the summer rally will prove temporary."
PowerShares DB U.S.
Dollar Index Bullish (UUP), measuring the greenback against a
basket of foreign currencies, fell 0.99% to a four-month low. The
weak jobs report leads traders to believe the Federal Reserve
will have to unleash more quantitative easing to support the
economy, which devalues the dollar and boosts commodities. The
U.S. added 96,000 jobs in August vs. 125,000 expected and below
the 163,000 added in July.
"Today's number (together with a sub-50 Manufacturing PMI on
Tuesday) has acted as a stark reminder that the U.S. recovery is
not only weak, but fragile," wrote David Morrison, market
strategist at GFT. "Over the past month or so, U.S. data was, on
balance, surprising to the upside. This raised expectations that
the economy was decoupling from Europe and China, where growth
continues to slow."
U.S. Markets Mixed
On the home front,
SPDR S&P 500
(SPY) added 0.48%.
PowerShares QQQ (QQQ) shed 0.16%.
SPDR Dow Jones Industrial Average (DIA) was nearly flat.
The rally that occurred after the ECB bond-buying plan was
mostly fueled by short-covering, says Tom McClellan, founder of
the McClellan Market Report. Traders with short positions aimed
at profiting from falling prices had to close out their positions
by buying them back, which appears as increased demand.
"The thing about short-covering rallies is that the energy
they bring is typically exhausted in just one day or less," he
wrote in a note. McClellan expects the market to pull back after
Thursday's strong rally.
Weekly Fund Flows
In the past week, investors pulled the most money out of Asia
ex-Japan stock funds in three quarters, according to EPFR Global.
Investors pulled $9.9 billion out of global stock funds, while
funneling $3.19 billion into bond funds and $4.6 billion in to
money market funds. U.S. stock funds saw outflow of $8
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