As market participants focused on the political uncertainty in France and Greece, possible Greek exit from the euro and banking problems in Spain, the adage of "Sell in May and Go Away" rang true again.
For those who did not sell, here are the outcomes: S&P, -6.3%, Stoxx, -8.1%, emerging market equities, -11.7%, gold futures, -6.1%, crude oil futures, -17.5% and EUR/USD, -6.6%. The two main assets that went up in price were U.S. Treasuries and U.S. dollar. The 10-year bond yield rallied 35bp to 1.56% and the Dollar Index rose 5.4%. Similarly Germany's 10-year bond yield fell 46bp to 1.2% while the Spanish and Italian 10-year government bond yield rose 79bp and 38bp respectively this month. Greece's 10-year bond performed the worst, widening a whopping 1,065bp. The fear index "VIX" and V2X (the European VIX) were up 7 and 8 points respectively in May, the biggest monthly rise since September 2011.
While recent U.S. data on consumer confidence, home prices, ISM index and real GDP growth are all softer than in the previous period, money has been flowing to the U.S., the world's deepest capital market, during a time of great macro uncertainty. Rising daily correlation coefficient of EUR/USD and gold futures, a jump from 0.11 in 2011 to 0.41 this year has put a substantial hurdle for gold price to advance. Year-to-date, EUR/USD has fallen about 4.6% while gold futures have fallen 0.3% despite rising as much as 14% as of Feb. 28.
The newly-released China's manufacturing PMI index, which fell unexpectedly from 53.3 in April to 50.4 in May, shows that China has slowed down more rapidly than expected, raising further uncertainty on world growth and commodities outlook. Euro and gold futures both weakened in Asia on Friday upon the news.
Technically, gold futures have bounced firmly above the level of $1,530 three times in the past month, which indicates physical buying and bargain hunting have taken place. According to Barclays, the short-term outlook for gold hinges on how solid physical demand and ETP holdings can stay. As of May 24, physically-backed ETPs are still up 42 tonnes this year.
The important events to watch will be this Friday's U.S. payroll report, Germany's factory orders next Tuesday and ECB interest rate decision on Wednesday.