Intraday Market Thoughts

Onto April Seasonal Winds

by Adam Button
Mar 31, 2021 18:43

Treasury yields are off their highs but threaten to break closer to the 1.80s%. USD is taking a break ahead of the holiday but this is not stopping oil from taking a fresh turn downwards (chart below). As the calendar turns, we take a look at the April seasonal patterns. Treasury yields sent a mixed message on Tuesday as the 10-year took out the March high of 1.75% only to backtrack and finish lower at 1.70%.

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Onto April Seasonal Winds - Us Oil Mar 31 2021 (Chart 1)

Declines in gold and a rise in USD/JPY above 110.00 appeared to confirm the breakout in Treasuries but the bond market had other ideas. Some of the reversal might be flows with large quarter-end rebalancing leading to bond buys and stock selling.

Onto April Seasonal Winds - Tweet Easter Holiday (Chart 2)

At the same time, the fundamental picture continues to improve and there's talk of a huge non-farm payrolls number that will land Friday in a market that will be largely closed. The latest bit of good data was the March consumer confident report, which jumped to 109.7 from 90.4; far exceeding the 96.9 consensus.

Even in Europe, optimism appears to be building with the German DAX rising above 15,000 for the first time. It's up nearly 8% from the second week of the month.

Some caution continues to be warranted around month and quarter-end but seasonal signals for risk appetites in April are positive. It's the best month on the calendar for equities.

It's also the second-best month for oil and will kick off with Thursday's OPEC+ decision. They're widely expected to maintain quotas for May but could pre-commit to unchanged production in June as well on account of fresh European lockdowns.

As you might expect with both oil and equities strong in April, it's the best month on the calendar for CAD, averaging a 1.2% gain over the past 20 years.

One warning sign for the rising-yield story is that it's the second-worse month for the dollar index. One area to watch closely is cable, which has risen in April in 16 of the past 20 years. It's easily the best month for GBP/USD, averaging a 1.3% gain in that span.


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