Sell In May?
IG | May 02, 2016 03:53AM ET
The question we should ask, after closing April with a solid 3.3% gain for the ASX 200, is whether we can make it three consecutive monthly gains in row. This is a fate we haven’t seen since October 2013, and the odds are finely balanced.
Statistically, May is the worst month to be long Aussie stocks, with the ASX 200 losing 2.32% on average over the decade. This was largely a result of a dire period between 2010 and 2013 where the index lost 5.66% on average, although the last two years haven’t been all that bad (we lost 0.2% last May). Still, when the financial sector saw its last positive May back in 2007, we knew there were headwinds, with the average loss in the space being 4.3% over the last ten years.
Westpac (AX:WBC)’s 1H earnings numbers today will set the tone for what looks like a flat and sombre open, with the China and Hong Kong markets closed today. The analysts’ consensus is calling for cash earnings of $4.025 billion, net interest margins of 2.14% and bad and doubtful debts increasing relative to gross loans and acceptances. Westpac have the pedigree, having beaten consensus estimates in six of the last eight on its bottom line and four on revenue.
It is worth noting the level of event risk this week, which in theory started yesterday by a modestly below consensus China manufacturing PMI at 50.1. AUD/USD has opened very slightly lower this morning, although there doesn’t seem to be too much concern for the China data. Naturally the AUD is prone to violent price movements this week given the upcoming interest rate decision. Market is pricing a 56% chance of easing, with focus also on the budget and the RBA Monetary Policy Statement. US payrolls on Friday (consensus 200,000 jobs) could give further risks to the USD, which has fallen for five days in a row, and testament to a Fed who had no interest last week in pushing back against lowly June expectations.
Gold and silver are the key beneficiaries of USD weakness, and both look primed for further upside. It seems a matter of time before gold trades above $1300, but as always that will be a function of currency moves. Both commodities seem to be getting increased attention from clients, which generally happens when gold comes in and out of the spotlight.
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