FYI | May 03 2010
By Chris Shaw
The old equity investors' market adage may be “sell in May and go away” but as Barclays Capital notes, global equity markets generally have a positive skew for the month. Nine of the 15 indices covered by Barclays are on thee-year May winning streaks and the group suggests Australia's All Ords actually has the highest chance of advancing this May at 70%.
This compares to just a 52% chance for the Dow Jones Industrial Average and a 50% chance for the UK's FTSE100, while China's Shanghai Composite is seen as a 60% chance of ending the month higher. Only the Nikkei is a less than even money chance of gaining according to Barclays, the group giving it only a 48% chance of an advance this month.
While the potential exists for a solid showing by Australian equities, the currency outlook is less positive, Barclays noting May is typically a weak month for most of the Commonwealth currencies including the Aussie, New Zealand and Canadian dollars.
The Kiwi against the US dollar tends to have its worst month of the year and this trend should continue as Barclays gives this currency pair just a 31% chance of an advance this month. This compares to a 38% chance of advancing for both the Aussie and Canadian dollars against the US currency. The latter comes despite an eight-year bear streak for the US dollar against the Canadian dollar in May.
Elsewhere, the US dollar is expected to gain a little, Barclays giving it odds of a little better than even money to gain against the euro and the yen, while the euro itself is given a 54% chance of ending May higher against the yen than where it is now.
In terms of the commodities markets, Barclays notes the energy and precious metals sectors are typically the most bullish performers in May. This trend should hold, Barclays giving gold a 55% chance of advancing this month, silver a 57% chance, natural gas a 58% chance and oil a 54% chance.
Aluminium typically does it tough in May, posting its lowest median returns of the year, and this year should be no exception according to Barclays. It gives the metal only a 45% chance of gaining this month, compared to a 54% chance of copper ending the month higher.
In the fixed interest markets, Barclays points out May tends to show strong tendencies, with the German curve trending significantly bearishly while New Zealand 10-year bonds are the most bullish. This is reflected in the group's view US and European 10-year yields have around 60% chances of gaining this month, against just a 39% chance for the matching New Zealand securities.
In contrast, Barclays suggests the odds of a yield advance for Australian 10-year bonds stands at around 55%, while for Japanese 10-year securities the odds are around 45%. In terms of the yield curve, Barclays suggests the odds of a steepening are lowest for the US two-year/10-year pair at just 36%, which compares to odds of 58% for a steepening in the same securities pair in Europe.
In terms of widening spreads Barclays sees the best odds in the EU versus US 2-year bond market at 63%, while the UK versus US 2-year bond market has the lowest odds of a widening in spreads at just 44%.
