Market Opinion - May 2024

Market Opinion - May 2024

May proved to be a positive month for global equity markets, with several regions showing strong performance across the board. European equity markets rebounded, hitting record highs after a pullback in April, while the UK and US markets also posted impressive gains. In Asia, Taiwan and Japan led the way, contributing significantly to the overall positive momentum.

European equity markets bounced back in May, achieving record highs following April's decline. The sector performance was well-balanced between cyclicals and defensives, with financials (banks and insurers) and industrials leading the charge. Headline inflation in Europe rose slightly from 2.4% in April to 2.6% in May, driven by higher energy prices. The labor market continued to tighten, with April's unemployment rate hitting a new record low of 6.4%. Wage inflation remained strong, but the European Central Bank (ECB) expects it to slow as companies adjust to higher labor costs.

The UK equity market closed higher in May, with the FTSE 100 reaching new all-time highs, buoyed by growth and easing inflation. Prime Minister Rishi Sunak surprised the nation by calling a general election on July 4th, shifting the focus to the government's economic record. 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 country out of the previous technical recession.

US equity markets performed well, with all major indices posting gains. The information technology sector led the way, while energy was the only sector to decline. The US Federal Reserve (Fed) signaled that interest rates would likely remain "higher for longer" due to disappointing inflation readings, maintaining rates at a 23-year high. Despite earlier resilience, the US labor market showed signs of cooling, with May's nonfarm payroll figures revealing 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. In Japan, equities saw steady gains, particularly in the financial sector. Despite weaker-than-expected GDP growth in the first quarter due to subdued household spending and falling exports, the Bank of Japan noted inflation risks and expressed readiness to adjust monetary policy while maintaining accommodative financial conditions. Korea's equity markets, however, fell back due to weakness in key index constituent Samsung Electronics.

Emerging equity markets saw gains in Asia and Emerging Europe but declines in Latin America and the Middle East. Taiwan and China performed well, while 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 the industrial sectors. Strong PMI readings suggest economic momentum and a positive outlook despite election-related volatility.

Global government bond markets had a strong start in May. Support stemmed from a slowdown in US jobs growth and remarks by US Federal Reserve Chair Powell on interest rates. 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 ECB's rate cut aggressiveness. While a cut is expected on June 6th, higher-than-expected inflation has fueled doubts about future cuts.

Corporate bond markets also saw growth, with dollar and sterling investment-grade bonds up 1.85% and 1.00% respectively. The strong performance in the fixed income sector further underscored the overall positive sentiment in the global financial markets during May.

In summary, May was a robust month for global equity markets, with key regions and sectors showing resilience and growth. As we move forward, investor attention will remain on inflation trends, central bank policies, and geopolitical developments.