Markets extended their upward momentum in May, driven by renewed optimism around AI, resilient corporate earnings, and easing geopolitical concerns.
UK
- UK inflation rose to 2.8% for the year to April (March 3.3%), with energy prices expected to add upward pressure in coming months.
- The UK Composite PMI (indicator of business activity, >50 is expansionary and <50 is contraction) decreased to 48.5,retreating from April (52.0).
- UK equities were largely flat over April, gaining +0.3%.Energy names drove the index which famously lacks AI-exposure, hence lagging peers.
- UK unemployment increased to 5.0%,from 4.9%.This coincided with the lowest number of job openings since April 2021.
- The Bank of England did not meet in May, with the next meeting set for the 18th of June.
Global
- Global equities rose +5.8% in May (MSCI ACWI) as risk-on sentiment returned as well as continued flow of capital to AI-related stocks.
- US equities continued advancing, adding +5.9% in May, following +7% in April. Led by strong US corporate earnings, AI sentiment and broad market participation.
- Kevin Warsh confirmed as Fed Chair and expected to be dovish, with his first meeting as Chair set for mid-June.
- Japanese equities rebounded strongly in April (+5.8%), mainly led by a small cohort of AI-related companies, most notably within the AI infrastructure space.
- EM equities gained +10.4% in May, holding pace from +11.3% gain in April. EM benefits from exposure to semiconductors and AI tailwinds.
- In Europe, equities rallied +2.9% in May. Falling oil price aided sentiment as Europe is a net importer and relies on it for the industrial-heavy index.
Fixed interest
- Global government bonds saw prices rise and yields drop throughout May, largely attributable to positive ongoing Iran negotiations and a weakened oil price.
- UK yields lowered at the end of May as oil price fell following a(nother) volatile month. Confidence in Starmer wobbled with Mandelson investigation. 10yr Gilt closed at 4.8%.
- US Treasuries remain focussed on inflation and fiscal risks rather than recession. Lower oil price helps inflation concerns. 10yr treasuries closed at 4.47%.
- Despite a positive month for bonds, fiscal concerns persist given elevated government debt levels, particularly in the US.
- Among corporates, investment grade bond spreads narrowed more high yield across the board. EM debt delivered returns of +1.7%.
Other
- Sterling was broadly stable against major currencies despite intra-month volatility. GBP/USD ended at $1.35. GBP/EUR ended at €1.16.
- Oil prices retreated -19% in May to $92/bbl, reversing +9% gains in April, despite similar levels of SoH ship traffic. Progression in negotiations suppress risk premium.
- Gold fell (-0.7%), still up +5% YTD. Sell off is a mix of optimism regarding the Iranian conflict as well as sustained high bond yields increasing their relative attractiveness.
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This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
