May was a positive month for equity and bond markets as investors remained bullish on the economic outlook and the prospect of interest rate cuts.
The European Central Bank (ECB) is widely forecast to cut its main refinancing rate for the first time since 2016 on Thursday, with the Bank of England also expected to begin reducing the UK base rate in the coming months. The FTSE 100 index gained a further 2% during the month, at one point reaching a new all-time high of 8,474, but it was a better month still for medium and smaller companies in the UK as they both appreciated more than 5%.
Prime Minister Rishi Sunak has called a General Election in the UK. He announced it on the day that UK inflation, measured by the Consumer Prices Index, fell significantly to 2.3%, its lowest level in almost three years. Markets typically respond well to lack of uncertainty, and with Labour strongly predicted to win the election with a majority, this may reduce any upticks in volatility seen in the run-up to polling day on 4th July.
Full round-up of May market performance
“It’s been a really good period for UK Equities, the last few months or so – the FTSE 100 reached a new record high! At one point during last month, it reached close to 8,500. But it’s been an even better time for medium and smaller companies; they both rose over 5% during the month.” – James Timpson, Fund Manager, Courtiers Multi-Asset Funds.
In the UK, the FTSE 100 index gained 2.08% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, picked up 5.48% and 6.71%. In the US, the S&P 500 USD index rose 4.96% while in Europe the Eurostoxx 50 EUR index picked up 2.42%. Japanese stocks measured by the Topix JPY index amassed 1.16%.
Emerging markets returns were mixed, with the MSCI Emerging Markets index rising 0.51% in local currency terms. Latin American equities, measured by the MSCI Latin America local currency index, declined 2.52% while Indian stocks measured by the Nifty 50 INR index slipped 0.33%. Chinese stocks measured by the MSCI China CNY index gathered 2.45%.
In the fixed income market, UK Government bonds, measured by the FTSE Gilts All Stocks index, gained 0.82% with long-dated (over 15 years to maturity) gilts climbing 1.22%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, returned 0.91%. In the high yield market, the ICE Bank of America Sterling High Yield index rose 0.78%.
In the commodities market, the S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, fell 1.90%. Brent crude oil futures tumbled 6.03% during the month. In the precious metals markets, the S&P GSCI Gold and Silver indices rallied 1.35% and 14.72% in USD respectively, while in the agricultural markets corn and wheat futures jumped 1.54% and 15.98% in USD respectively.
In the currency markets, it was a positive month for the pound as it appreciated 2.00% versus the US dollar, 0.27% against the euro and 1.68% versus the yen.