European equity markets surged in May, hitting record highs after April's pullback.
Prime Minister Rishi Sunak surprised by calling a general election on 4th July, shifting focus to the government's economic record.
Asia Pacific equity markets had a positive month; however, Korea's markets declined, impacted by weakness in Samsung Electronics.
May was a positive month for global equity markets. European equity markets bounced back, hitting record highs after April's pullback. Notably, the UK equity market closed higher, with the FTSE 100 reaching new all-time highs fuelled by growth and easing inflation. Asian markets performed well, led by Taiwan and Japan, while emerging markets ended the month in positive territory. Furthermore, fixed income markets performed strongly in global government bond markets.
European equity markets recovered in May, hitting record highs after April's decline. Sector performance balanced between cyclicals and defensives, with financials (banks and insurers) and industrials leading.
Headline inflation rose from 2.4% in April to 2.6% in May, driven by higher energy inflation due to last May's oil price decline.
The labour market tightened further, with April's unemployment rate hitting a new record low of 6.4%. Wage inflation remained strong, but the European Central Bank expects it to slow as companies adjust to higher labour costs.
The UK equity market closed higher in May, with the FTSE 100 hitting new all-time highs fuelled by growth and easing inflation.
Prime Minister Rishi Sunak surprised by calling a general election on 4th July, shifting focus to the government's economic record. Labour leader Sir Keir Starmer said it was "time for change".
The UK economy expanded by 0.6% in the first quarter of the year, surpassing expectations and marking the fastest growth in two years, lifting the UK out of the previous technical recession.
US equity markets performed well, with all major indices posting gains. Information technology led the way, while energy was the only sector to decline.
The US Federal Reserve (Fed) signalled that US interest rates would likely stay "higher for longer" due to disappointing inflation readings, maintaining rates at a 23-year high.
Despite earlier resilience, the US labour market showed signs of cooling. May's nonfarm payroll figures revealed the addition of 175,000 jobs in April, below expectations and the previous figure of 315,000.
Asia Pacific equity markets had a positive month, led by Taiwan and Japan, followed by Australia and China. Financials and information technology sectors contributed most to the gains.
Korea’s equity markets fell back with weakness in key index constituent Samsung Electronics weighing heavily on performance.
In Japan, equities saw steady gains, particularly in the financial sector. Despite weaker-than-expected Gross Domestic Product growth in the first quarter due to subdued household spending and falling exports, the Bank of Japan noted inflation risks and readiness to adjust monetary policy while expecting continued accommodative financial conditions.
Emerging equity markets saw gains in Asian and Emerging European markets but declines in Latin America and the Middle East. Taiwan and China performed well.
Latin American markets fell, with gains in Chile, Peru, and Colombia offset by losses in Brazil.
In Mexico, markets dipped as Banco de México kept rates steady at 11%, hinting at possible future cuts dependent on US policy.
In India, markets progressed amid volatility, led by industrial sectors. Despite volatility from elections, strong PMI readings suggest economic momentum and a positive outlook.
Global government bond markets got off to a strong start. Support stemmed from a US jobs growth slowdown and remarks by US Federal Reserve Chair Powell on interest. However, mid-month, the rally waned due to upbeat economic data and inflation concerns, particularly in Europe.
Concerns about eurozone inflation raised doubts about the European Central Bank's rate cut aggressiveness. While a cut is expected on 6th June, higher-than-expected inflation fuels doubts about future cuts.
Corporate bond markets also saw growth, notably dollar and sterling investment grade bonds, up 1.85% and 1.00% respectively.
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Global Fixed Income Strategy Monthly Report
In our regularly updated macroeconomic analysis we offer an outlook for interest rates and currencies – and look at which fixed income assets are favoured across a range of market environments.
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EMEA 3628155/2024
