By Jan Faure
Global markets gained in May with both equities and bonds yielding positive returns. In the US, the S&P 500 gained 4.8% while the tech-heavy Nasdaq Composite climbed 6.9% driven by strong first quarter earnings from technology companies.
AI behemoth Nvidia led the charge, helping drive gains in May, surging 27% following better-than-expected financial results which included year-on-year revenue growth of 262% in the first quarter. Nvidia’s growth has been staggering, growing from a market-cap of $144 billion to $2.8 trillion in the space of four years. Nvidia now ranks as the world’s third largest listed company (behind Microsoft and Apple).
US economic data sent mixed signals regarding the timing of potential interest rate cuts. Labour data revealed fewer jobs being created as well as subdued wage growth, while GDP and retail sales data indicated weakening US consumer demand. However, strong services and manufacturing (flash PMI) data suggested strong business activity. Markets have tended to react positively to weak data as it fuels rate cut expectations.
Both US headline (CPI) and core inflation slowed in April, aligning with consensus and boosting expectations that the Fed might start cutting interest rates in September, effectively ending the tightening cycle that began in March 2022. Consequently, global bonds returned 1.3% for the month as bond yields declined. Nevertheless, there remains a degree of uncertainty around the timing of rate cuts, which has fuelled greater volatility in bond markets.
In Europe, the Euro Stoxx 50 gained 1.3% while the UK’s FTSE 100 added 1.6%. European manufacturing and services data, alongside corporate profits, showed encouraging signs of improving economic activity. Preliminary inflation data for May indicated an up-tick in both headline and core inflation in the Eurozone, raising concerns that the European disinflation trend may not continue as expected. Despite this, the ECB is still expected to lower interest rates at its next meeting on June 6th.
In Asia, Japan’s Nikkei 225 Index gained 0.2%. GDP data showed Japan’s economy contracted 2% in the first quarter of 2024, falling short of market expectations. The contraction was driven by a fourth consecutive quarter of declining private consumption (which accounts for more than half of the economy), attributed to cost-of-living pressures and sluggish wages.
Chinese equities disappointed in May, declining 0.7% month-on-month, as a protracted property crisis continued to weigh on consumers and the economy. Persistent weakness in Chinese domestic demand has necessitated a strong reliance on export-orientated growth. Equity markets have struggled to sustain a recovery rally, with investors doubting the effectiveness of various government stimulus measures in stabilising the property market.
Overall, economic data seems to confirm peak rates in developed markets, with the main variable being the timing and extent of interest rate cuts. Bond markets have been sensitive to incoming economic data, but the reset in yields has been welcomed by risk-adverse investors. Recent corporate results indicate healthy fundamentals, although valuations vary (sometimes significantly) between different market sectors.
Table 1: Global Indicators – Local reporting currencies
