Market Commentary May 2021

Global equities rose during the month in local currency terms as risk sentiment remained robust. However in Sterling terms, most overseas equity markets lost money due to the strength of the pound.

The vaccination programs continued to gain steam across the world, although rising infections in several countries remain concerning. The US recently passed a milestone as roughly 50% of its population has received at least one vaccine shot, which stands in stark contrast to infection flare-ups in Latin America and India.

In the UK, the proportion stands at north of 59%, the third highest in the world.

Economic data was more mixed in May, with job gains in the US undershooting expectations. The key concern continues to be around inflation: US CPI rose 4.2% from a year ago, its fastest pace in more than 12 years. While the high inflation print led to another good month for inflation-linked bonds, it was not reflected in traditional government bond prices.

The 10y US Treasury yield fell three basis points, meaning prices rose as investors focused on the weaker jobs growth data and the Federal Reserve’s verbal commitments to maintain its QE and low interest rate policy.

To put this backdrop into numbers, in Sterling terms European and UK equity indices were the standout performers in the month, rising 1.5% and 1.1% respectively.

By contrast US equities fell 2.0%, with the technology heavy NASDAQ 100 down 3.8%. Japanese, Pacific and Emerging market indices also ended the month in the red.

Turning to fixed income markets, as mentioned previously, global inflation-linked bonds continued to deliver for investors, rising 1.7% in the month. High yield and investment grade credit also posted marginal gains, outperforming sovereign bonds as credit spreads narrows.

Finally, oil prices rose to just under $70. Continued recovery in demand globally, along with expectations for strong fuel consumption in the US during the summer driving season, supported prices. The best returns came from gold, which rose 7.6% in US dollar terms, its best month for some time.