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Sell in May and Go Away

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Most surely, if you work in finance. you have heard the phrase “Sell in May and Go Away” as the fifth month of the year is traditionally considered bad for equity markets. Why? Theoretically, because fund managers normally go on a long summer vacation. Will it be the case in 2021? Because Covid-19 is still bothering humanity, especially Asia and Europe, the answer would be no. On the other hand, big investment sharks have been cashing out over the last few weeks. It could be a sign of an inevitable correction, a priori. The only problem is that government stimulus programs are still in force and low interest rates stimulate investors to take additional risks.

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Unfortunately, no one has a crystal ball, for that reason, the strategy should be based on facts and not so much on superstition. For example, let’s take a look at next week’s events and try to analyze what can trigger market movements.

The main event will be the publication of PMI in the manufacturing and services segment, trade data, as well as data on entrepreneurial activity in the US, Brazil, France, and Germany. Despite rising inflationary pressures, Treasury yields are not a threat yet, but how long will this last? Most likely, amid growing signs of global economic recovery, the yield will also rise.

Another crucial event will be the RBA and the Bank of England presentations, as well as the publication of the monthly US jobs report. In the end, keep in mind that the earnings season is in full swing and the results will be published by such companies as Activision Blizzard, Cummins Inc, ConocoPhillips, Pfizer Inc, Lyft, General Motors, Uber Technologies, Anheuser-Busch InBev, ViacomCBS, and Beyond Meat.

Quite an eventful week, isn’t it? On the one hand yes, on the other no surprises are expected, as of now. To be more precise, the iSM data is expected to rise to 65.1 in April from 64.7 in March in the US. Thus, a steady increase in core inflation is expected in 2022.

It is worth mentioning that most likely, the volatility in the markets will be moderate due to the holidays in China, Japan (may 3,4,5), and the UK (May 3).

The Reserve Bank of Australia will meet on Tuesday. Policy changes are not expected as the vaccination campaign is delayed. Still, it will be interesting to see what the central bank has to say about the surge in commodity prices that should trigger inflation.

The main event on Wednesday will be the publication of the index of business activity in the services sector in the eurozone, Italy, and Spain and data on employment in US private companies ADP. Despite a difficult first quarter, the European economy is clearly on the rise and things look optimistic. The problem is that excess optimism could trigger inflation pressures…

On Thursday, the focus will be on the Bank of England. Against the backdrop of a rapid recovery, the Central Bank may reduce stimulus measures to avoid inflationary risks.

In addition, the minutes of the meeting of the Bank of Japan on monetary policy, the Caixin service business activity index, data on factory orders in Germany, the EU construction business activity index, the decision of the Central Banks of Turkey and the UK on the rate and data on US employment will be published.

The week will end with the publication of a report on the number of jobs in the nonfarm sector in the US, data on China’s trade balance, and industrial production in Germany. It is expected that the number of jobs outside agriculture will grow by 950 thousand compared with the previous 916 thousand. Also, ECB President Christine Lagarde will speak.

 

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