FYI | Nov 01 2011
– November usually good for equities, fixed income
– Energy sector the commodity standout
– Currencies mixed, US dollar in particular
By Chris Shaw
November is historically a positive month for equities, notes Barclays Capital, kicking off a bullish period that typically runs through to March. The group's analysis of seasonal trends shows median returns for equities for the month are positive across the board. It is the best month of the year for the Dow Jones, the S&P, the Swiss and Canadian markets, while the Topix is the bearish standout.
In terms of the likelihood of an advance, Barclays carries the Swiss market at the top of the list with a 75% chance of posting an advance, while most of the major markets such as the Dow Jones, the FTSE and the All Ords are given between 60-70% chances of gaining for the month. The TOPIX and South Africa's JSE All Share index are the laggards, being given chances of just 54% each of closing the month higher.
In foreign exchange markets Barclays notes the safe currencies such as the US dollar and the Swiss franc tend to do well. This is reflected in slightly better than even money chances of the greenback gaining against major currencies such as the yen, the Canadian dollar and the British pound.
Both the Australian and New Zealand dollars are given 57% chances of gaining on the US dollar, while Barclays also has the euro at a 54% chance of posting a gain against the greenback across the month. The euro is also given a 59% chance of finishing the month higher against the yen.
Commodities enjoy a broadly bullish backdrop in November, with natural gas typically the best performer and West Texas Intermediate posting its worst month of the year. Expectations reflect this, as Barclays gives natural gas a 59% chance of a gain this month, the same for copper, followed by a 54% chance of gold gaining.
In contrast, the group gives WTI just a 28% chance of an advance for the month, while silver is expected to lag its precious metal partner by offering just a 39% chance of closing the month with a gain.
With respect to fixed interest, Barclays notes November tends to be a bullish month for most bonds, especially those at the long end of the curve. Bearish exceptions are US 2-year bonds and all 3-month paper.
In terms of the likelihood of any yield advance, Barclays suggests 10-year bonds across the market all offer less than a 50% chance of a yield advance, the range around 30% for Swiss and Japanese securities and 48% for US 10-year securities.
US 2-year bonds are given a 55% chance of delivering a yield increase this month, while the range for three-month securities is 48% for Sterling to 61% for Libor and Euroyen securities.
For yield curves, the steepening tendency is strongest for Japanese 2-year versus 10-year securities, while all other major curves tend to flatten in November, reports Barclays. In relative value terms the yield spread between UK-v-US 2-year bonds has the highest probability of widening at 72% against a 29% chance for Eu-v-UK 2-year bonds.
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