FYI | May 04 2011
– Equities, natural gas typically gain in May
– May is traditionally a good month for US dollar, while commodity currencies tend to weaken
– Yield advances possible for US, Australian and European 10-year bonds
By Chris Shaw
Despite the “sell in May and go away” adage, Barclays Capital's analysis of monthly seasonal trends shows global equity markets historically have a positive skew for May, though the impact is less pronounced than for April. Most likely to advance in the view of Barclays are Australia's All Ords, the Swiss SMI and the Toronto Exchange, all with odds of an advance of 63% or better.
On the flip side Barclays notes the FTSE tends to be among the most bearish of performers in May, a trend expected to repeat this year given odds of an advance of just 48%. The Nikkei may also struggle as Barclays gives this index just a 46% chance of ending the month higher.
In forex markets, Barclays notes May tends to be a rebound month for the US dollar, while commodity currencies such as the Australian, New Zealand and Canadian dollars tend to perform poorly. Barclays gives all three a less than 40% chance of posting gains against the greenback this month.
Elsewhere, Barclays expects the euro may struggle against the British pound and the US dollar but sees potential for a gain on the yen.
In the commodities space, May performance is typically driven by the energy sector, with natural gas the best within the sector. Barclays gives natural gas a 56% chance of gaining this May.
Oil and gold also tend to do well and Barclays gives slightly better than 50% chances to both gaining again this month, while aluminium is at slightly less than an even money chance of posting a gain. Barclays ascribes a 52% chance of copper ending the month higher.
For fixed interest, May is traditionally the best month of the year for New Zealand 10-year bonds as measured by both median and mean performance, while being the worst month of the year for US 10-year bonds.
Barclays' forecasts reflect this, the group suggesting NZ 10-year bonds have only a 36% chance of delivering a yield increase this month against a 54% chance for Aussie 10-year bonds and a 60% chance for both US and Euro 10-year bonds.
At the shorter end of the market, Barclays suggests three-month EuroYen securities have only a 32% likelihood of a yield increase, against a 56% chance for Schatz securities.
For yield curves, Barclays notes US 2-year vs 10-year securities typically flatten more than any other curves in May, while UK 2-year vs 10-year bonds are most likely to see a steepening in the curve. Most likely to deliver a widening in yield spreads are Japan vs EU and EU vs US 2-year bonds according to Barclays. Both are given a 67% likelihood of a steepening during the month.
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