FYI | Jun 04 2012
– June marks the start of traditional bearish summer season for equities
– US dollar usually struggles this month, commodity currencies mixed
– Going becomes tougher for commodities in June
– Bonds markets also tend to be bearish for the month
By Chris Shaw
An analysis of monthly season trends by Barclays Capital shows June is the beginning of the bearish summer season for equities, as evidenced by a seven year losing streak for the Dow Jones Industrial Average (DJIA) this month. June is also the worst month of the year for South Africa's JSE.
Looking at this year's June, Barclays suggests the likelihood of an advance runs below 50% for a number of major markets, including Germany's DAX, the FTSE100 in London, the TSX in Canada and Australia's All Ords. Those markets where the odds favour an advance include Japan's Nikkei and TOPIX indies, the HangSeng in Hong Kong and India's Sensex as well as the S&P500 in the US. Likelihood of an advance for these markets range from just over 50% to around 70% according to Barclays.
Historical data show the US dollar also struggles in June against most of the other major currencies. The odds of the greenback gaining against the euro, the British pound and the yen are estimated to be less than 50% this time around, while euro gains against currencies such as the pound, the Norwegian Krone and Swedish Krona are considered more than likely.
Commodity currency performance is likely to be mixed, Barclays noting the odds of the Australian dollar gaining on the US dollar are around 56%, while it is more of an even money proposition for the Canadian dollar against the greenback.
Commodities themselves tend to find the going tougher in June, As Barclays points out the CRB Index typically loses ground, though in a minor fashion, this month. Odds of advance for the index are seen as broadly even money this time around, while Barclays suggests the precious metals will find the going tougher and have only around a 40% chance of gaining this month.
Base metals performance is likely to be more mixed, as Barclays suggests copper has a little better than 62% chance of advancing this month while aluminium is given just more than a 40% chance of gaining. The odds of an increase in West Texas Intermediate prices this June are seen as around 52%.
June is typically a bearish month for bonds, to the extent Barclays suggests the likelihood of a yield increase this month is less than 50% only for US and Australian 10-year bonds among the major 10-year offerings.
At the shorter end Barclays sees the likelihood of an advance for 5-year US bonds of 48%, which compares to odds of 37% for US 2-year securities. Three month securities are seen as offering mixed performance, Barclays noting the chance of a yield increase for 3-month LIBOR is just 37% against around 60% for 3-month EuroYen securities.
In terms of yield curves and relative value, US 2/10-year bonds show a stronger flattening tendency than any other curve in June according to Barclays, while no curves see any steepening as measured by median returns.
From a relative value perspective Barclays notes the odds of a widening are greatest for Japan v EU 2-year bonds at around 57%, which compares to odds of around 29% for EU v US 2-year securities.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
