FYI | Jul 01 2011
– Equities mixed, copper strong in July
– US dollar tends to outperform commodity currencies for the month
– Bond markets not expected to show any yield advance
By Chris Shaw
Equity markets typically deliver some extreme performances in July according to Barclays Capital, the group noting the month tends to be the best of the year for the Hang Seng but the worst for the Nasdaq and the Topix indices.
There is a reasonable spread of expectations this July, Barclays giving Australia's All Ords, the JSE in South Africa and the Sensex better than 60% chances of posting gains this month. This compares to just a 44% chance for the Nikkei and a 47% chance for the Nasdaq to end the month higher. The Dow Jones Index is given a 58% chance of advancing.
In the commodity sector July is traditionally the best month of the year for copper with a median return of 3.4%. Barclays expects this trend will continue, giving the metal a 65% chance of gaining this month. Oil is ascribed a 69% chance of advancing for the month, while Barclays suggests gold has an even money chance of moving higher and silver a 56% chance.
Only aluminium is expected to struggle this month, Barclays giving it just a 45% chance of ending the month at higher levels. This is in line with the trend for the metal of posting negative median returns in July.
Currencies typically deliver mixed performance in July, Barclays noting the month tends to be the worst for the EUR/GBP and NZD/USD pairs, while it is traditionally the best month of the year for the EUR/SEK pair.
Barclays notes July generally sees the US dollar outperform the commodity currencies and a similar performance is expected this year, giving the greenback a 55-61% chances of gaining against the Australian, Canadian and New Zealand currencies.
Euro performance is expected to be mixed, Barclays suggesting while there is an even money chance of the euro gaining against the US dollar, there is only a 39% chance of an advance against the British pound.
In the fixed income market, Barclays suggests most 10-year securities show a low chance of any yield increase this July, with the US dollar the most likely at a 49% chance of an advance. The only yield gain is expected in US 5-year securities, though this is no certainty given Barclays ascribes just a 51% chance of a yield gain.
For yield curves the UK 2v10-year pair is the most likely curve to steepen according to Barclays at 61%, while the US 2v10-year curve is given a 56% chance of steepening. Japanese 2v10-year securities tend to steepen more in July than in any other month.
Barclays suggests the likelihood of a widening in the yield curve is lowest for Euro v UK 2-year bonds and for Japanese v Euro 2-year bonds.
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