4 ETFs to Watch This Week

Market Vectors Solar Energy ETF (KWT)

Major players from the solar energy industry are on tap for earnings this week. Though not the largest ETF designed to target this corner of the alternative energy sector, KWT will likely be the most heavily influenced given the calendar.

First Solar, MEMC Electronic Materials, and GT Solar International are KWT's three largest positions and together represent close to a third of its assets.

iPath S&P 500 VIX Short Term Futures ETN (VXX)

The debt-ceiling negotiations in Washington have injected a strong dose of uncertainty into the marketplace. Such a scenario is ideal for the fear-tracking volatility index. Bloomberg noted late last week that the VIX has ascended to levels last seen in March following the earthquake in Japan.

VIX-backed ETNs have flourished in this shaky environment, and VXX witnessed gains throughout the past week and is once again trading above its 50-day moving average. Looking to the days ahead, it will be interesting to see if the ETN can sustain these levels.

iShares Cohen & Steers Realty Majors Index Fund (ICF)

The real estate sector continues to be a particularly vulnerable region of the marketplace. Despite estimate-beating earnings from industry bellwether D.R. Horton and an unexpected rise in home sales during June, homebuilder ETFs like iShares Dow Jones U.S. Home Construction Index Fund struggled to find support. By the close of last week, ITB was trading at new 2011 lows.

The past week was challenging for REITs as well. However, this corner of the real estate industry continues to show welcomed stability. Shares of iShares Cohen & Steers Realty Majors Index Fund has stuck to a strong upward path throughout the year.

In the upcoming days, investors can expect to learn more about the current state and future prospects for REITs and ICF. Public Storage, General Growth Properties and Boston Properties are slated to report quarterly earnings numbers.

iShares MSCI Italy Index Fund

The next few days should prove interesting for the Italy's markets as the nation struggles against the ongoing euro crisis and digests the earnings results from a number of the largest Italian firms. Among the companies slated to release their performance information are Enel, Intesa Sanpaolo, and Generali Assicurazioni, Unicredit, Telecom Italia, and Tenaris. These companies comprise over 40% of EWI's index.

Construction Spending Increases Marginally

Builders began work on more office buildings, shopping centers and hotels in June, pushing construction spending higher for a third straight month. But even with the gains, activity remains at depressed levels.

Construction spending rose 0.2 percent in June to a seasonally adjusted annual rate of $772.3 billion, the Commerce Department reported Monday. Residential construction declined, reflecting a big drop in apartment construction, and spending on government building projects also fell, but private nonresidential activity rose to the highest level since late 2010.

Analysts believe it could be another four years before construction returns to healthy levels as the effects of a severe recession and collapse in home building linger.

In June, private residential construction dropped 0.3 percent to a seasonally adjusted $235.8 billion with a 0.3 percent rise in single-family home building offset by a 2.8 percent drop in the apartment sector.

The 1.8 percent rise nonresidential construction pushed this sector to $257.7 billion, the highest level since December 2010 with a number of commercial projects including hotels, office building and shopping centers all showing gains.

Government building projects fell 0.7 percent to an annual rate of $278.9 billion, the lowest level since March 2007. Budget cuts at the state and local levels have led to a sharp drop in government spending. Analysts are concerned that the new deficit-cutting agreement that President Barack Obama reached on Sunday with House and Senate leaders will result in drops in federal spending that will further slow the overall economy.

Homes are now the most affordable they've been in years. But bargain prices and super-low mortgage rates have done little to boost sales. Economists say it could take several years before the housing market recovers.

Sales of previously owned homes fell for a third month in June and are lagging behind last year's sales pace when 4.91 million homes were sold, the fewest since 1997. In a healthy economy, people buy about 6 million existing homes annually.

Analysts said the weakening job market and the uncertainty over foreclosures could lead to deeper price declines in the second half of the year. They estimate that prices will fall another 5 to 10 percent by year's end.

China Manufacturing Activity Declines

According to data released this week by HSBC, China's manufacturing activity contracted slightly in July, signaling a deterioration in the operating environment at the nation's factories, as tighter monetary conditions weighed further on the sector.

The monthly purchasing managers index fell to 49.3, its lowest reading since March 2009, compared with 50.1 in June, HSBC said in its monthly statement. The final outcome was better than the 48.9 print recorded in a preliminary reading that HSBC released a few days earlier.

The data, based on the results of a survey compiled by Markit, confirmed a slowing growth momentum in the manufacturing sector "against the backdrop of sustained tightening and lackluster external demand," Hongbin Qu, HSBC's chief economist for China, said in a statement accompanying the data.

"That said, the current level of the PMI is still consistent with a 12%-13% growth rate of industrial production, which leaves room for Beijing to keep tightening policy through [the third quarter] to check inflation," Qu said.

The contraction came after policy makers in China raised interest rates and the proportion of deposits banks must keep in reserve several times over the last few quarters, to control price increases.

HSBC's PMI release followed an official PMI gauge published earlier Monday by the China Federation of Logistics and Purchasing, which also showed a further slowdown in activity at Chinese factories in July.

The CFLP data showed China's PMI slipped to 50.7 in July from 50.9 in June, but remained above the expansion/contraction boundary of 50.

Credit Suisse's China economist Dong Tao said the CFLP PMI data should ease concerns about a "hard landing" for the nation's economy, though it still signals that growth is moderating.

"We believe that the July PMI data will not alter the policy track Beijing has set for [the second half of 2011]. In case the economy slows down more than expected, we think that it would be fiscal stimulus, rather than monetary easing, that would come to the rescue," Tao wrote in a report.

Data released by HSBC and the CFLP diverged on input price inflation.

The CFLP's survey found that a sub-index of input prices eased to 56.3 in July from 56.7 in June.

However, HSBC said its own survey showed that material costs rose slightly in July from the previous month, although the extent of the increase was "muted."

"Companies that reported an increase in cost burdens generally commented on higher raw-material prices," HSBC said in its statement.

"Meanwhile, prices charged by manufacturers for their final product rose only marginally, with the rate of inflation easing to the slowest in the current one-year period of higher average tariffs," HSBC said.