Overview
May recorded another good month of this year for most of the asset classes including equities, commodities, and fixed income markets as economic data supported the rates cut stance this year. The month experienced a change of pace for markets with fresh buying in stocks as investors digested earnings season for equities along with economic data. Commodities took the advantage of this changing market environment scenario, resilient economic outlook, and anticipation of increased demand and supply shortage. We also saw a softness in yield curve that supported the fixed income markets.
Looking at the performance of major asset classes, after a lacklustre month, equities proved to be the best asset class as economic data signalled a softer stance in all major economies and consensus for interest rates cut to happen in the second half of the year started getting momentum. US equity market barometer S&P 500 index gained nearly 5% while DJ Islamic market index, the benchmark for shariah-compliant investments, rose just over 4.2%, broadly reflecting optimistic view on upcoming rate cuts. UK FTSE 100 index was the next best performer that increased 2.1% followed by the European stocks index, Euronext 100, that appreciated by 1.8% amid easing concerns over the recession. Japan’s Nikkei 225 index ended the month almost flat while China’s Shanghai index fell roughly 0.5% as government’s stimulus policies seem to have created limited attraction. Overall commodity markets delivered a good performance with DJ Commodity Index increased by nearly 1.9% and gold appreciating 1.6% as rate cut expectations boosted appeal for the metals, however, Oil fell 5.4% amid hopes for easing tensions in Middle East after few occurrences of clashes between Iran and Israel. Lastly, UK pound appreciated by 2.08% against US dollar while DJ Sukuk Index surged by 1.1% amid easing pressure on the yield curve.
Market Snapshot
News & Key Events in May
UK
• The annual inflation rate in the UK eased to 2.3% in April 2024, the lowest since July 2021, compared to 3.2% in March and market forecasts of 2.1%.
• The Bank of England maintained the key bank rate at 5.25% on May 9th, the highest level since 2008, and in line with expectations. However, two committee members preferred to reduce the rate by 0.25pp, compared to only one member in the previous meeting and officials revised down inflation forecast while boosting growth outlook.
• The British economy grew 0.6% on quarter in the first three months of 2024, above forecasts of 0.4%, and ending the recession it entered last year, preliminary estimates showed.
• On Wednesday 22 May, following positive announcements regarding inflation and economic growth, the prime minister surprised politicians and pundits alike by calling a general election for 4 July.
US
• Annual inflation rate in the US eased to 3.4% in April 2024 from 3.5% in March which was the highest reading since September, in line with market forecasts.
• Fed policymakers continue to expect that inflation would return to 2% over the medium term, although recent data has not increased their confidence in progress toward the target, minutes from the April 30th-May 1st FOMC meeting showed. As a result, maintaining the current target range for the federal funds rate at 5.25%-5.50% was supported by intermeeting data indicating continued solid economic growth.
• The US economy expanded an annualized 1.3% in Q1 2024, below 1.6% in the advance estimate and 3.4% in Q4 mainly due to a downward revision in consumer spending.
• President Joe Biden vetoed a House Joint Resolution that aimed to repeal the SEC’s Staff Accounting Bulletin 121 (SAB 121). This controversial guidance requires financial institutions holding crypto for customers to keep these assets on their own balance sheets. Critics argue that it complicates the ability of financial institutions to work with crypto companies.
Europe
• Annual inflation rate in the Euro Area rose for the first time in five months to 2.6% in May 2024 from 2.4% in each of the previous two months, and above forecasts of 2.5%, preliminary estimates showed.
• The HCOB Eurozone Manufacturing PMI rose to 47.3 in May from 45.7 in April, slightly below the preliminary estimate of 47.4. This marks the highest reading since March 2023, indicating the slowest decline in the Eurozone manufacturing sector in over a year.
• Basel III reforms: new EU rules to increase banks’ resilience to economic shocks. The Council adopted new rules aimed at making banks operating in the EU more resilient to possible economic shocks. The changes aim to increase the resilience of banks, strengthen their supervision and reinforce risk management. In addition, they will strengthen supervision and sustainability in the banking sector.
• ESMA provides guidance to firms using artificial intelligence in investment services. When using AI, ESMA expects firms to comply with relevant MiFID II requirements, particularly when it comes to organisational aspects, conduct of business, and their regulatory obligation to act in the best interest of the clients.
China
• China’s annual inflation rate rose to 0.3% in April 2024, compared with market estimates and March’s figure of a 0.1%. It was the third straight month of consumer inflation, amid ongoing recovery in domestic demand despite a fragile economic revival.
• The People’s Bank of China kept key lending rates unchanged at the May fixing, matching market expectations. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.45%. Meanwhile, the 5-year rate, a reference for property mortgages, was retained at 3.95% following a record cut of 25bps in February.
• The United States accused China’s leadership of supporting Russia’s war in Ukraine and warned that Beijing could face further sanctions in response from the United States and other NATO countries.
Others
• The annual inflation rate in Japan fell to 2.5% in April 2024 from 2.7%, moderating for the second straight month.
• Japan’s GDP shrank 0.5% qoq in Q1 of 2024, compared with market estimates of a 0.4% fall and after a downwardly revised stagnation in the prior quarter, a flash figure showed.
• The annual inflation rate in Russia edged up to 7.8% in April 2024 from 7.7% in March, matching the market forecasts.
• The annual inflation rate in Canada eased to 2.7% in April of 2024 from 2.9% in the earlier month, in line with market expectations, to mark the softest rate of consumer price growth since March 2021.
• Iran’s President Raisi died after a helicopter carrying him and other officials crashed in a mountainous and forested area of the country in poor weather.
• After the approval for spot Bitcoin ETFs on January 10, 2024, the Securities and Exchange Commission (SEC) has approved a rule change that allows exchanges to list spot Ethereum ETFs in the U.S. on May 23, 2024.
Disclaimer
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