Wealth Management: Monthly Market Summary
May 2021, Investment Insights Team, Investment Strategist Team, Wealth Management
Summary: Equities withstand higher inflation
Global equities recorded a fourth consecutive month of gains in May, rising +1.6% (in USD terms). Global investment grade bonds also rose +0.5% (in USD). Key events saw:
- Equities add to YTD gains, driven by cyclical sectors as restrictions eased further;
- Central banks remain dovish but higher US inflation add to tapering concerns;
- Reopening in many countries and Covid-19 vaccination campaigns accelerate.
Global stocks reached new highs in May, although at a more muted pace vs. prior months. Positive sentiment was driven by the progress in COVID-19 vaccination programmes, falling case numbers and economies reopening. Strong macro-economic indicators and the commitment by leading central banks to maintain key bond-buying programmes supported markets. Nevertheless, a sharp rise in US inflation figures fuelled concerns of tapering measures. Higher inflation weighed particularly on growth stocks, with the Nasdaq declining. The US 10Yr yield fluctuated sideways around 1.6%. Supported by inflation concerns, Gold staged a comeback and reached a 4-month high whilst Brent crude oil rose to a 3-month high benefiting from higher demand as economies reopened.
US: Economy booms, inflation rises sharply, Biden proposes $6tr. package
US economic momentum remains strong, supported by reopenings with more than 40% of the population now fully vaccinated. The US Composite PMI survey climbed to a new alltime high (68.1) and the US labour market continued to recover with initial jobless claims falling to their lowest level since the start of the pandemic. However, some April data came in below expectations: new home sales, durable goods orders and retail sales missed. These data points reduced concerns of an imminent tapering of interest rates by the Fed despite April seeing the largest month-on-month increase in the core consumer price index since 1981. As the month closed, the White House proposed a US$6 trillion budget aimed at ramping up spending on infrastructure, education and combating climate change.
Europe: Improving economic outlook, ECB remains supportive
European countries made progress with their vaccination programmes, resulting in falling contagion rates in May and further easing of restrictions. The Eurozone Composite (PMI) reached its highest level since February 2018 driven by a jump in the Services PMI, which benefited from these measures. The economic outlook for 2021 improved further with
consumer confidence and industrial sentiment reaching new highs. As in the US, inflation rose, reaching 2% in May for the Eurozone and 2.5% in Germany in May. Nevertheless, the ECB confirmed it will continue its pandemic emergency bond purchases (PEPP) to address rising bond yields. Elsewhere, tensions flared between European nations and Russia over Belarus with the EU imposing sanctions against Lukaschenko's regime.
ROW: Steady recovery in China; mixed economic data in Japan
In China, the Caixin Manufacturing PMI for May reached a five-month high (52.0), signalling a steady recovery for the Chinese economy from the pandemic. However, April data capturing industrial production and retail sales indicated slowing momentum for economic growth. Meanwhile, new COVID-19 cases in India started to ease towards month-end after
a traumatic 2nd wave. In Q1, the Indian economy grew by 1.6% QoQ, but economists have reduced their outlook for the full year due to the impact of the pandemic. Turning to Japan, latest economic data was mixed. While industrial production expanded by 2.5% MoM, the Composite PMI declined to 48.1, dragged down by the service sector which suffered from
new COVID-19 restrictions in April as cases rose.
Performance figures (as of 05/31/2021 in local currency)
|Fixed Income||Yield||1 M %||YTD %|
|US 10 Yr||1.63%||0.6%||-4.2%|
|UK 10 Yr||0.79%||0.5%||-4.3%|
|Swiss 10 Yr||-0.18%||0.3%||-2.3%|
|German 10 Yr||-0.19%||0.1%||-2.8%|
|Global IG (hdg $)||1.62%||0.5%||-2.0%|
|Global HY (hdg $)||4.32%||0.8%||1.9%|
|Equity Index||Level||1 M %||YTD %|
|MSCI World ($)||364||1.6%||10.8%|
|MSCI EM ($)||669||2.3%||7.3%|
|Currencies (trade-weighted, nominal)|
|Commodities||Level||1 M %||YTD %|
Source: Bloomberg, Rothschild & Co