February Usually Weak For Oz Equities And US Dollar
By Chris Shaw
While markets tend to be volatile in January, Barclays Capital notes February tends to be a relatively quiet month. In equities this usually translates to a more bullish performance in the emerging markets space but also to more subdued performance for developed markets.
February is traditionally a weak month for Australian equities and Barclays expects this trend will continue tis year, giving the All Ords only a 45% chance of posting a gain this time around. India's SENSEX, the Shanghai Composite, the TOPIX in Japan and South Africa's JSE All Share Index are all given a better than 60% chance of closing the month higher, while major indices such as the Dow Jones, the FTSE100 and the Nikkei are ascribed 50-60% chances of gains.
In the commodities space, Barclays notes aluminium tends to be the best performer in February and the analysts see a 62% chance of further price increases for the metal this month. This is well above the 50% chance given to copper.
Precious metals could gain given odds of advances according to Barclays of 54% for both gold and silver, while energy looks more mixed with natural gas given a 50% chance of gaining against a 48% chance for oil prices.
Among the currencies, Barclays notes February tends to be the worst month of the year for the US dollar against the Japanese yen as measured by both median and mean averages. To reflect this seasonal weakness Barclays gives the US dollar just a 37% chance of advancing against the yen this month.
Most likely to advance in the analysts' view is the euro against the US dollar with a 63% chance, while the euro against the yen and the Aussie dollar against the greenback are both given 53% chances of gains this month. The New Zealand dollar appears set to outperform its Australian counterpart as Barclays gives the Kiwi currency a 61% chance of gaining on the US dollar in February.
In fixed interest Barclays notes February tends to be the worst month of the year for Australian 10-year bonds, US 5-year and 2-year securities and 3-month Euroyen as measured by changes in yield. Each of these securities, along with US 10-year bonds, are being given a better than even money chance of delivering yield gains this time around.
Least likely to see a yield increase at the long end, according to Barclays, are Canadian 10-year bonds at just 32%, while at the shorter-end the group ascribes the same percentage chance of a yield gain for 3-month Sterling securities.
In terms of yield curves, Barclays points out the best median yield change in February typically comes from EU 2-year versus 10-year bonds, while the worst is delivered by the corresponding US securities. Odds for the month reflect this, Barclays giving a 58% chance of a steepening in the yield curve for the former and just a 25% chance for the latter.
Investors should always keep in mind that seasonal patterns are just that. They do not provide a rock-solid blueprint for the future.
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