FYI | May 02 2012
– Equities have modest positive bias in May
– Commodity market more mixed
– Greenback expected to gain on commodity currencies
– Fixed interest markets also mixed this month
By Chris Shaw
The old share market adage of “sell in May and go away” is not actually reinforced by historical market performance as the technical analysts at Barclays Capital note equities show a modest positive bias for the month according to statistics. Barclays use those stats to determine the unqualified "odds" of positive or negative financial market movements.
Expectations for this year reflect this, as Barclays gives most markets odds of an advance this month of between 45-55%. Among the most likely to deliver a gain is Australia's All Ordinaries at 66%, while at the other end are the FTSE 100 at 46% and Japan's Nikkei at 45%. US market performance is likely to be mixed, as Barclays gives the Dow Jones a 49% chance of ending the month higher against 59% for the Nasdaq Composite.
For commodities the outlook is also mixed, as Barclays notes while energy and precious metals tend to perform well this month base metals struggle. Expectations reflect this, Barclays giving natural gas spot prices a better than 60% chance of gaining this month, while gold is an even money play and aluminium offers just a 42% chance of ending the month higher.
Expectations for the foreign exchange market are also mixed, as for example while Barclays expects the US dollar to gain on the commodity currencies the greenback is likely to find the going tougher against both the euro and the Japanese yen.
As examples, Barclays gives the Australian dollar only a 37% chance of posting a gain this month against the US dollar and just a 32% chance for the New Zealand currency, while both the euro and the yen are ascribed a 51% change of gaining against the greenback for the month.
The euro has been on a six year losing streak against the British pound in May and Barclays sees this trend continuing this year, giving the euro only a 41% chance of ending this month higher against the pound. Gains should be easier against the yen, Barclays suggesting there is a better than 60% chance the euro closes May higher relative to the Japanese currency.
In the fixed interest market May also tends to deliver mixed results and the expectations of Barclay reflect this. While 10-year bonds in the US and Europe are given near 60% chances of a yield increase for the month, similar Australian and New Zealand securities are given just 46% and 37% chances respectively of delivering yield increases this May.
With respect to yield curves Barclays notes a widening trend dominates this month, though May is a standout for the US 2-10 year curve, which tends to flatten more than any other. Only the European 2-10 curve is seen as likely to steepen in the month ahead according to Barclays, while from a relative value perspective the spread between Japan v EU 2s tends to widen more in May than any month of the year. Barclays suggests the EU v US 2s also may widen this month, with a likelihood of 62% for such a movement in this pair.
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