What’s moving markets..

May was a continuation of April, with the Ukraine war and Chinese lockdowns ongoing.

Energy prices continued rising and crude oil prices rallied by more than 11% during the month, a staggering increase of over 70% year to date. This helped drive US inflation to 4.9% over 12 months to April 2022. Inflation reached 7.5% in the EU and 9% in the UK, the highest level since 1982. Central banks have a tough challenge of managing inflation while avoiding a “hard landing”. This may be easier in the US, where inflation is falling and growth expectations are higher, while the EU and UK still struggle with rising inflation and a lower growth outlook.

But it’s not all negative. While consumers and companies face higher costs, economic data remains robust in many quarters. US factory production is still strong, while retail sales and card spending are solid. Jobless claims are low, as are credit card and mortgage delinquencies. While consumer savings ratios in the US and UK have fallen over the last year, they remain broadly in line with long-term averages. Overall, corporates and consumers still look relatively healthy.

Asset class implications…

It was another negative month for many equity and bond markets. Energy performed best in the FTSE All World Index, driven by rising oil prices. Alternative energy was the second best performing sector in global equity markets, with tobacco and banks also gaining value. However, many other sectors fell in May, particularly consumer services and mining.

On a regional level, UK, European and Japanese equities all saw modest positive returns, while the US, Asia and Emerging Markets were all negative.

Bond returns were generally negative as yields rose over the month. Expected rate rises in the US led to continuing strength in the dollar.

Within alternatives, property was marginally up over May, with infrastructure broadly flat.

Overall, it remains uncertain how quickly inflation will fall and whether a global recession can be avoided.