Insight

Monthly Market Roundup covering May 2022

Monthly Market Roundup
Overview
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European shares ended lower in May as record eurozone inflation, the prospect of interest rate hikes, and slowing growth all dampened investor sentiment.
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There was better news in UK and Asian equity markets which edged up. US markets, bar the tech-heavy NASDAQ index, also rose as investors were boosted by a small fall to inflation figures compared to last month.
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The US Federal Reserve (Fed) raised US interest rates by its largest increase in more than 20 years. The Chair Jerome Powell strongly signaled that there would be two further 50 basis points rate hikes in June and July.

Global equity markets endured a tough month in April, with most ending the month down. Widespread inflation, the Russia-Ukraine conflict and expectations around the US interest rate hike cycle continue to have an impact. While the dollar surged, the pound and euro fell significantly against it; intensifying China lockdowns have dampened demand and confidence in Asia.

Rising inflation, the threat of interest rate rises and slowing growth all dampened investor sentiment, meaning European markets ended May down.

Having held off for some time, European central bank policymakers have agreed now that interest rate hikes are needed. These are likely to happen in July and September, to help control record inflation.

In politics, Portugal’s finance minister pledged to cut debt in the face of higher borrowing costs. The German finance minister has urged the EU to rein in public spending and Finland and Sweden have formally applied to join NATO.

The UK equity market finished modestly up in May, though slowing growth and high inflation continue to be areas of concern.

UK unemployment fell to its lowest level in nearly 50 years in the three months to March. There were also less people out of work than job openings for the first time on record.

As the cost-of-living crisis rages on, chancellor Rishi Sunak announced a £15bn support package to help people with their energy bills.

US markets rose slightly to ended fractionally up, thanks to a V-shaped recovery through to the end of the month.

Commodities, like wheat and oil performed well but concerns over Covid restrictions in China, global rising inflation and macroeconomic risks of the Ukraine war remain.

Inflation did fall relative to last month but was still above expectations. This did spark hope among investors that the systematic risk might have reached its peak and a disinflationary trend may now follow.

Following a similar path to the US, Asian markets finished May with marginal gains, ending a three-month losing streak.

An improving Covid situation helped ease some of the pressure. US President Joe Biden also announced that he’s considering removing some of the tariffs on Chinese imports which contributed to the recovery. This positive impact was felt in Hong Kong too.

Taiwanese, Korean, Indian, and Australian equities all ended slightly down. In Australia, this was largely because the Reserve Bank of Australia increased interest rates for the first time since 2020, and further increases are expected.

There were small gains in Emerging markets, but these regions outperformed developed markets in May, led by Latin America.

Though EM EMEA underperformed, this was offset by impressive gains in EM Latin America where all countries finished up, except Peru. EM Asia remained flat with India significantly underperforming the rest of the region.

Chile, Colombia, and Brazil posted the biggest gains, while Hungary, the United Arab Emirates (UAE) and Egypt lagged the most.

Difficult times persist for bond markets as pressure continues to build on central banks to hike interest rates to control inflation.

As expected, the US Federal Reserve (Fed) raised rates by 0.5%, the largest increase in some 20 years, with more anticipated. In the UK, the Bank of England (BoE) raised rates from 0.75% to 1.0% as inflation is expected to hit 10% later in the year.

Corporate bond markets had a mixed month. Investment grade and high yield bonds in the UK and Europe registered negative returns, but those in the US delivered gains.

May saw strong support for environmental and social (E&S) shareholder proposals continue as the proxy voting season wound down. Investors showed their conviction that these issues need to be managed properly.

Elsewhere, he regulatory focus on climate risk continues as the Bank of England released its Biennial Climate Exploratory Scenario. This saw 20 of the UK’s largest banks and insurers take on their most thorough climate stress test to date.

Focus on fund disclosures and labelling notched up as the Securities and Exchange Commission (SEC) entered the fray with their own take on ESG product disclosures and labelling. This has followed a similar pattern to the EU’s Sustainable Finance Disclosures Regime, where each development caused more confusion than clarity for the market.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. 

Important information

  • Data as of 30 April 2022 unless stated otherwise.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

    Past performance is not a guide to future returns.                           

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.