Global Equities climbed in May after a drop in US inflation and signs of a slowing economy. These factors raised hopes that the US Federal Reserve (Fed) might lower borrowing costs soon. This optimism pushed many stock indices to record highs, although some uncertainty about future monetary policy caused occasional market fluctuations. Meanwhile, oil prices fell due to weak demand and reduced concerns about tensions in the Middle East.
UK stocks rose after the Bank of England announced plans to cut interest rates soon, as the economy emerged from a mild recession. In political news, Prime Minister Rishi Sunak called for a general election on July 4th. Annual inflation slowed for the third consecutive month in April, dropping to 2.3% from March’s 3.2% rise. Additionally, the economy grew by 0.6% in the first quarter compared to the previous quarter. The British pound also strengthened against the US dollar in May.
US equities rose as inflation met expectations, strong corporate earnings were reported, and signs of a slowing economy boosted hopes that the Fed might ease monetary policy. These factors helped stock indices reach record levels. However, the Fed warned that borrowing conditions might remain tight, causing some market unease in the latter half of May. Annual inflation slowed to 3.4% in April from 3.5% in March, and first-quarter GDP growth was revised down to an annualised 1.3% from 1.6%. The US dollar weakened against a basket of currencies during the month.
European markets climbed as investors anticipated that the European Central Bank was close to cutting interest rates. Strong corporate earnings also boosted European stocks to all-time highs. However, sentiment weakened in the latter half of May due to concerns about when the monetary easing would happen. By the end of the month, it was revealed that eurozone consumer inflation had risen to 2.6% year-on-year in May from 2.4% in April. The euro slightly weakened against the British pound but strengthened against the US dollar in May.
Japanese shares fell due to rising goverment bond yields and economic contraction. The economy shrank by 2.0% in the first quarter, with core inflation slowing to 2.2% in April. The yen weakened, prompting government intervention. Meanwhile, Asia-Pacific equities (excluding Japan) slightly declined. Chinese shares rose with government support for the property sector, while consumer inflation rose and producer prices dropped. Indian stocks hit all-time highs ahead of elections, AI interest boosted Taiwanese shares, and US monetary policy concerns pressured South Korean equities.
Emerging markets had mixed results in May. Brazilian stocks dropped due to political concerns and severe flooding in the south. South African shares stayed mostly stable, with the country likely to form its first coalition government after a close election. Meanwhile, Turkey’s market improved despite ongoing high prices.
Yields on major government bonds varied. US 10-year Treasury yields fell due to expected rate cuts later this year, while yields on German and Japanese 10-year government bonds increased. In corporate debt, US investment-grade bond spreads tightened, and high-yield bond spreads widened slightly.
