Although volatility remains high, most equity markets offered positive returns in May, with the FTSE 100 index, the Eurostoxx 50 index and the S&P 500 index all posting modest gains for the month. With bond yields continuing to rise along with inflation, it was another rocky month for fixed income markets. In the UK, the yield on 10 year gilts has risen to its highest level since 2015, ending the month at 2.1%.
Currency markets have also been wobbly, with many currencies faltering against a strengthening US dollar. The pound fell below $1.25 to its lowest level against the dollar for over two years, while the Japanese yen has slumped to its lowest value versus the dollar since 2002.
Chancellor Rishi Sunak unveiled a windfall tax on energy firms with the intention of raising £5 billion to help with soaring energy prices. The tax is temporary, with energy firms being made to pay an additional 25% in tax for the next twelve months. The two largest energy firms in the UK, BP and Shell, have shrugged off the news with the share prices still gaining around 10% each during the month due to the continued rise in oil prices.
Full round-up of May market performance
In the UK, the FTSE 100 index gained 1.13%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, slipped 0.72% and 1.92%. In the US, the S&P 500 USD index rose 0.18% while in Europe the Eurostoxx 50 EUR index picked up 1.28%. Japanese stocks measured by the Topix JPY index climbed 0.78%.
Emerging markets returns were varied, with the MSCI Emerging Markets index moving -0.14% in local currency terms. Indian stocks measured by the Nifty 50 INR index declined 3.03% while Latin American equities, measured by the MSCI Latin America local currency index, jumped 3.97%. Chinese equities measured by the MSCI China local index gained 1.28%.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, fell 2.97%, with long dated (over 15 years to maturity) gilts shedding 6.54%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, were down 1.37%. In the high yield market, the Bank of America Merrill Lynch Sterling High Yield index declined 1.76%.
There were mixed returns in the commodities market. The S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, picked up 5.07%. This included further rises in oil prices, as crude oil futures gained 9.53% during the month. In the agricultural markets, corn and wheat futures returned -7.91% and 4.19% in USD respectively. In the precious metals markets, the S&P GSCI Gold and Silver indices dropped 3.61% and 5.97% in USD respectively.
In the currency markets, it was a mixed month for the pound as it rose 0.22% against the US dollar but depreciated 1.55% versus the euro and 0.52% against the yen.