FYI | Jun 01 2009
By Chris Shaw
Equities have had a good run since March but the going may be tougher in June given Barclays Capital points out both the Dow Jones Industrial Average and the NASDAQ are on four-year losing runs for the month. As well, the group gives Australia’s All Ordinaries and South Africa’s JSE the lowest odds of an advance this month at just 38% for both, well below the 49% and 58% chances of an advance it ascribes to the two US indexes.
Most likely to move higher this month, according to the group’s historical analysis, is India’s Sensex with a 70% chance of ending the month higher, while the Nikkei is given a 62% chance of gaining and the HangSeng a 56% probability. European equities appear likely to struggle, with the UK’s FTSE given a 44% chance of advancing and German’s DAX a 47% chance.
In contrast, the euro is seen as a likely better performer on foreign exchange markets and in particular against the Japanese yen, the British pound and the US dollar, while the greenback in contrast has negative median returns against the major currencies.
As befitting such trends, Barcays suggests the euro has a 55% probability of gaining against the US dollar this month, a 66% change against the pound and 58% against the yen, while it also sees a 55% chance the Aussie dollar finishes the month higher against its US counterpart and a 54% chance the Aussie gains against the New Zealand dollar.
While in recent weeks there has been strength in commodity prices a continuation of this rally is less certain as Barclays points out only copper traditionally does well in June, the rest of the commodity spectrum tends to post negative median returns for the month.
This year the group gives a 61% change to the potential for copper to move higher again while it sees such a move in oil prices as even money. Gold, silver and aluminium are all more likely to fall in price this month than to gain with odds of an advance of 44%, 34% and 43% respectively.
In the fixed interest sector Barclays points out June is traditionally a bearish month for the German, UK and Japanese markets and so it gives all three markets a better than 50% chance of yield increases again this year. This compares to 45% on US 10-years, 46% on Aussie 10-years and just 41% on New Zealand 10-year bonds.
In terms of yield curves the group notes the trend is for curves to steepen in Japan, Europe and the UK, but this trend doesn’t carry over to the US market. With respect to relative value Barclays expects outperformance by two-year US securities against their UK counterparts and the same for European two-year securities against those of Japan.
Historical analysis conducted by analysts at GSJB Were earlier this year revealed the Australian share market on average retreats 0.4% in June. But that’s an average calculated between 1980 and last year. When the analysis is limited to the past ten years, June tends to perform 0.8% positively.
The difference between the two reference periods appears to be a switch in the respective performances for May. The month of May used to generate a positive return of 0.9% on average (since 1980) but the last decade has seen this change into a negative 0.2%, on average.
The main question this year is whether May and June have reversed roles again, or not?
Investors should always remember: history can provide us with guidance, but it never comes with guarantees.
