In May, there was no escaping the market turmoil. For once, it was not inflation. Instead, it was the US debt ceiling and poor data. We now have a a few days of political shenanigans to see whether Biden and McCarthy have enough cross-party support to get this over the line before the clock runs out.
Inflation pressures continued to ease, although not as quickly as central banks would like. Yet US inflation is back down to 4.9%, French and Spanish inflation numbers fell more than forecast, and even the UK is back into single figures. But what should have pleased economists worried them, given the stickiness of the UK’s core inflation - Goldman Sachs has predicted that it will not be until the end of 2025 before inflation is under control.
The data remains gloomy, with China manufacturing data falling faster than expected on the last day of the month, dragging Hong Kong to a new 2023 low.
Globally, market participants are pricing in a higher-for-longer scenario, with UK rates expected to peak at around 5.5% - at 4.5%, they are already sitting at a 15-year high.
Central banks do now have more wiggle room to play with. Still, the likelihood of seeing rates back down to 1% and below is unlikely anytime soon, if at all again. For the West, apart from in Japan, the experiment is well and truly over.
In such a nervy environment, investors remain cautious with the VIX up from the end of last month but still down below its historical average.
In such a market, Japanese equities continued to soar and closed the month as the pick of the developed markets, with the Nikkei 225 up over 7%. Despite tech this month having the wind behind it, the S&P 500 was up only 0.4%, but the Nasdaq was up 5.8% - Tesla was up over 24%, while Amazon and Alphabet were up around 14%. The FTSE 100 weighting to more commodity-focused businesses, which had served it well last year, is now proving a deadweight, and it fell 5.4%, and the DAX was down 1.6%.
The BCOM was down 5.6% in May, led by black gold that provided a fairground ride, heavily down at the start of the month, then up, before slumping into month end with WTI down 11.5% and Brent 9.1%. TTF and UK gas prices were down over 30% for the month as the weather warmed up and there were no Russian supply pressures. Precious metals fell, with silver leading this retreat, down 6.3%.
The crypto bull market stalled this month, with Bitcoin down 7.9% but still up 65% since the start of the year.