FYI | Jan 07 2009
By Rudi Filapek-Vandyck
History shows January is usually a positive month for global equities. This is exactly how share markets have entered the new calendar year: with a continuation of the rally that started on low volumes in the final week of 2008.
The team of technical strategists at Barclays Capital notes last year started on a sour note, but that was the exception. The underlying message seems to be: investors shouldn’t worry too much just yet, January usually starts off on a positive note and that is exactly what we are seeing at the moment. The team even talks of a “strong seasonal bias” for January.
Equally, the first month of the new calendar year tends to have a strong bullish bias for 3-month global rates, particularly for German rates where yields tend to decline across the curve. On a relative value basis, reports the team, German two-year bonds show a tendency to outperform peers in the US, UK, and Japan.
Commodity markets have taken off on a very strong note as well, but here the historical trend is far less pronounced, reports the team. January is usually good for silver and WTI crude, but historically it is usually one of the worst months for natural gas, and negative for copper. Aluminium, on the other hand, usually experiences its strongest month at the very beginning of the year.
As far as currencies are concerned, the US dollar has a strong bullish skew exhibiting positive median and average returns against all the major currencies this month and recent price action seems to indicate the greenback might be staging a come back after being slaughtered – mercilessly – in the closing weeks of calendar 2008.
What seems to be driving a weaker euro is the fact that more interest rate cuts should be on its way in Europe, even though some politicians and central bankers on the old continent are still talking tough on inflation, or at least cautious towards expectations for further rate cuts.
According to data compiled by the team at Barclays, the euro tends to weaken against the US dollar in January (December usually displays the opposite trend).
The Australian dollar has staged a remarkable comeback over the weeks past, fuelled by an overall return of risk appetite in financial markets, and a steadily rise in the oil price. Both have lifted prices for other commodities, both soft and hard, as well.
For the All Ordinaries, the team has put the odds for an advance this month at 59%. Historically, the index has generated gains of up to 17.2% during the month, but also losses as large as 11.3%. Only the UK share market has recorded a negative start to the new calendar year two years in a row (last year and the preceding year).
The odds for the Dow Jones to advance this month have been put at 65%, with historical returns varying between a gain of 14.4% and losses of up to 8.4% for the first month of the new calendar year. For the broader S&P500 index, the corresponding numbers are 62% and 13.2% and minus 7.6%.
