FYI | Mar 31 2011
– April is typically good for equities
– Commodities mixed over the month
– Commodity currencies usually gain against US dollar
– Debt markets struggle in April
By Chris Shaw
April historically delivers a positive skew for global equity markets, Barclays Capital's analysis of monthly seasonal trends showing the best performers are the Shanghai Composite, France's CAC40 and Australia's All Ordinaries.
Barclays expects equity prices will move higher this April, its estimates of odds for market advances ranging from 55% for the Sensex Index in India to 79% for the All Ords. In the US, the Dow Jones is given a 64% chance of gaining, while the S&P500 is rated a 69% chance of closing April higher.
Energy also typically does well in April, Barclays noting natural gas is historically the best performer in this sector. This trend should continue as natural gas is rated a 67% chance of gaining this month, compared to oil as measured by West Texas Intermediate (WTI) at 52%.
Precious metal performance could be mixed as Barclays sees gold as having a 56% chance of gaining this April, against just a 40% chance for silver. Base metals are also likely to be mixed given Barclays estimates copper has a 55% chance of finishing the month higher, well ahead of a 33% chance for aluminium.
In currency markets, Barclays notes April tends to see a weakening of the US dollar against the commodity currencies, with New Zealand typically the most consistent gainer against the greenback. This is reflected in an estimate of a 61% chance of gains for the NZD/USD pair this month, which compares to a 50% chance of gains for the AUD/USD pair.
The US dollar is also expected to weaken against the Canadian dollar, while Barclays estimates the chances of gains for the euro and US dollar against the yen and the euro against the US dollar as broadly even money.
April tends to be a poor month for debt markets, with most 10-year bonds rated as better than a 50% chance of delivering a yield increase. The exception are Aussie 10-year bonds, where Barclays estimates there is only a 39% chance of a yield gain this month.
Results are similar for 2-year and 5-year bonds globally, while Barclays suggests shorter-term 3-month notes are in general a less than 50% chance of recording yield gains this April.
With respect to the yield curve, April is typically a standout month for US 2-year vs 10-year bonds, with the curve tending to steepen the most on average. There is a broad trend towards a steepening in yield curves in the month, the exception being Japan where the 2-year vs 10-year tends to flatten.
In terms of relative value, Barclays notes the most likely to deliver a widening are Japanese vs US 2-year bonds and UK vs US 2-year bonds, both rated at a little better than a 60% chance.
