As the month draws to a close, the old “sell in May” strategy failed miserably for equity investors – except in Japan and emerging markets.
There are a couple of lessons from this May, but first here’s what the major assets did during May, first in local currency then in dollar terms:
Since the US is still open, both charts are up to the close of the 30th, for consistency, so not quite the full month; European markets today were down about 1 per cent, and Japan up just over 1 per cent, but the broad patterns remain the same.
The post-Draghi recovery has stalled. To recap: last Thursday ECB president Mario Draghi said the central bank is ready to do whatever is needed to save the euro, and markets went wild.
The markets are more nuanced today.
- The euro is down (perhaps rationally: if the euro solution is to print money, debasement offsets the continued existence of the currency). Just as important for the technically-minded is that the euro failed to break its 30-day moving average, at $1.237.
- The German 2-year yield has set a new low, coming close to -0.1% before recovering a little. Flight capital, in other words, is still headed for Germany. Longer dated German bond yields remain wider than last week, but are still tighter than at the start of July. There is not much confidence that Draghi will succeed in the face of the Bundesbank’s opposition.
- On the plus side, Spanish yields continue to improve, with the 10-year having now plunged a full percentage point since last Tuesday, and short-dated yields also dropping sharply. Again, though, things remain worse at the end of July than they were at the start.
The two most important eurozone charts after the turn