Encouraging growth data signalling the continuation of the global economic recovery helped propel markets forward over the month. Inflation pressures persist, however, with CPI data in the majority of global economies arguably supporting these concerns. From a Covid standpoint, vaccination programmes continue to be a success within the developed word, whilst several developing market countries are still being devastated by high hospitalisations and mortality rates. Nevertheless, emerging market (EM) equities outperformed in May as soaring commodity process proved a tailwind for Latin American bourses with the MSCI EM Latin American Index climbing 8.0% in US terms driving the MSCI’s broader Global EM Index up 2.3%, whereas the MSCI developed market gauge lagged with a return 1.5%, again in USD terms.
Record Purchasing Managers’ Index (PMI) releases over the month beat expectations and indicates that business activity in the US is in the midst of a sharp rebound. Both Manufacturing (62.1) and Services (70.4) components expanded at their fastest pace on record, elevating the composite reading to 68.7 (above 50 indicates expansion). Headline inflation rose to 4.2% for April whilst not showing any obvious signs of slowing, as producer price factors and labour dynamics exert upward pressure on consumer prices. The S&P 500 was up 0.7% in May, in contrast to the 1.4% fall in the growth-orientated NASDAQ, a representation of the re-emergence of value’s outperformance over growth year to date.
Equity markets in Europe were buoyed by an improvement in sentiment driven by the progress in the region’s vaccination programmes and the implications for a subsequent easing of restrictions catapulted the region to one of the month’s best performances. Economic growth expectations have increased as the services sector of the economy accelerated sharply in May in anticipation of an opening up of society. Coupled with the Union’s already strong Manufacturing activity (63.1) the robust Services component’s 55.2 print sent the Eurozone’s composite PMI to 57.1. The MSCI Europe ex-UK Index returned 2.8% in local currency terms.
The United Kingdom (UK) continued its progression out of lockdown as per the Prime Minister’s scheduled road map. The vaccination roll-out continues to be a success and consumer optimism resulted in a significant rise in retail spending (+9%) as the economy looks set to emerge from the final stages of restrictions. The OECD raised the UK’s growth forecast for 2021 from 5.1% to 7.2% and it was confirmed the economy expanded 2.1% in March. The more transmissible Delta Covid variant is causing an increase in new cases, however, which has the potential to delay reopening plans. Meanwhile, supply is struggling to keep up with demand in response to the sharp increase in spending, adding to existing inflationary pressures. Against this backdrop the FTSE All-Share was up 1.1% in Sterling terms.
Inflation fears continue to influence fixed income markets. Treasury yields had a volatile month responding to various economic announcements. The 10-year benchmark issue fell to 1.46% on the back of disappointing labour statistics before reversing direction to end the day at 1.58% on labour shortages fears. It ended the month with a yield of 1.59% down 4 basis points over the month. The US Dollar, as measured by the DXY Index, fell 1.59% over May which was positive for emerging market debt and the JP Morgan EMBIG rose 1.1%, while Global Inflation Linkers returned 3.0%, all in local currency terms.
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