Market Update with Aled Phillips

It was a generally mixed end to spring in terms of global markets. Asset classes in the UK generally performed well, and despite the calling of a General Election, markets remained fairly un-moved. In the US, stagflation concerns were cushioned somewhat, while there has been continued debate over the possibility of any interest rate cuts across Europe and beyond.

Today’s market update will take a closer look at all of the key movements across the globe to keep you informed on the factors affecting your portfolio. As always though, it’s important to know that these short-term movements are not relevant in the longer term, and investment managers continue to navigate such events effectively.

Positive returns

In sterling terms, all asset classes - apart from commodities - produced a positive return.  Global equities gained 2% in May with the MSCI All Country World Index reaching a new all-time high on May 20th as equities rallied after a more difficult April.

Within Equities, it was Europe ex UK and the US that led the performance.  In contrast, Emerging Markets and Japanese markets witnessed declines.  Value outperformed growth in the UK, Europe ex UK and Emerging Markets, whilst small caps outperformed large caps in the UK and Europe ex UK.

In Fixed Income, all sub sectors managed to produce positive returns led by Emerging Markets and Corporate Bonds. Despite May’s gains year to date Fixed Income has still produced a minor loss.

Tentative economic outlook

US market sentiment was dented in April by the growing risks of stagflation pressures building.  This changed in May with a soft-landing outlook on the back of a series of downside surprises in US economic data; a central bank indicating a continued easing bias during their May meeting and weakness seen in the US inflation data. 

In Europe, the economic data was generally better than expected and despite European CPI coming in higher than expected at the end of the month the expectations are still that the ECB will cut rates by 25bps at the start of June. 

In the UK, economic dataflow was more mixed with Q1 GDP beating expectations but other data such as the Purchasing Managers Index (PMIs) falling more than expected.  Economic data in the UK was overshadowed by Prime Minister Sunak calling a General Election (the timing of which surprised most participants). Apart from this though, there was no significant reaction in markets to the announcement.

In Asia, China had a mixed month.  The first half started well as strong trade data and supportive policy rollouts helped boost the markets, although this faded by the end of the month on softer domestic demand and headline news around US tariff increases.

Fixed Income, commodities and earnings 

Fixed Income also had a mixed month with the declines in yields seen during the first half of the month offset in the second half, notably by 10-year JGB yields reaching 1% for the first time since 2012.  

Meanwhile, commodities had a mixed May. Metals saw robust returns led by Precious Metals and particularly Silver - which gained over 4% during May - reaching all-time highs.  Within energy there was a strong rally in Gas - up 11% - while oil declined.

The earnings season finished in May with earning growth coming out stronger than expected, particularly in the US, and this helped support equity market sentiment.

During the month, the stickier than expected inflation data has raised some concerns that the two interest rate cuts priced in for the US, Europe and UK may not come through.  Meanwhile, political risk remains elevated, although June may be a quieter month in this regard, before tensions pick up again in the second half of the year. 

As always, if you have any questions about your investments or would like to discuss your financial plan, then please contact your adviser.