FYI | Aug 02 2012
– August a weak month for equities and risk currencies
– Japanese yen and US dollar tend to perform better
– Commodities mixed
– Bond markets more bullish
By Chris Shaw
An analysis of monthly trends by Barclays Capital shows for global equities August tends to be a weak month, as eight of 15 indices covered post negative average returns for the period. Performance in general has also been weak for the month over the past two years.
The data suggests this year the likelihood of an advance is best for Australia's All Ordinaries at 66%, while Barclays notes most other major markets offer a slightly better than 50% chance of gains for the month. The exceptions are Japan's Nikkei and Hong Kong's Hang Seng, both of which offer a less than even money likelihood of posting gains.
August tends to be a more mixed month for commodities, as Barclays notes performance among commodity classes tends to be split. As examples, oil prices (as measured by West Texas Intermediate) historically have trended higher and natural gas prices lower, while gold and silver have similarly tended to respective gains and losses for the month and copper outperforms other base metals.
In terms of likelihood of advances this time around, Barclays suggests gold and oil offer 56% and 55% odds of gains, while silver and aluminium offer only 42% and 36% chances respectively of gaining this month.
In foreign exchange markets the analysis by Barclays shows risky currencies tend to struggle in August, while the strongest currencies are the Japanese yen and US dollar in that order. The Australian dollar also finds the going tough, registering its worst month of the year against both the New Zealand and US dollars.
This August the likelihood of an advance among the major currencies are highest for the euro against the US dollar and the British pound at just over 50% in both cases, while the pound against the greenback is lest likely to gain given a likelihood of an advance of just 39%. The Australian dollar has a 44% chance of advancing against both the US and New Zealand dollars according to Barclays.
Note that all "chances" are based solely on historical averages.
In contrast to other markets, Barclays notes August has historically been the most bullish month of the year for bonds as measures by median yield changes. Only 3m Libor and 3m SSterling offer a likelihood of a yield increase of more than 50%, while Barclays suggests longer-term securities such as Canadian and Australian 10-year bonds offer only a 26% chance of a yield increase this month.
In contrast, US and Japanese 10-year bonds offer the likelihood of a yield advance of 48% and 42% respectively.
Barclays notes all major yield curves tend to flatten in August, with the US and Japanese seeing the most significant changes for the month. In relative value terms August shows strong tightening tendencies across the various market regions, with Barclays noting yields on Japan v US 2-year bonds and Japan v EU 2-year bonds tend to tighten the most.
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