Monthly Market Outlook: May 2018

Tue 08 May 2018

Read our full Monthly Market Update

Following two months of negative returns for risk assets, equities rallied in April as trade war fears were downplayed and positive earnings, especially in the US, continued to come through. The month was also notable in that markets sold off over fears of an escalation of the Syria conflict, however the limited nature of the strikes meant that weakness around this event proved to be a blip. The other prominent geopolitical news – a seemingly cordial meeting between South Korean President Moon Jae-in and Kim Jong-un of North Korea – was also positive news for markets. UK equities had a particularly strong month gaining 6.8%, although some of the performance was due to weakness in Sterling, which sold off late in the month as a weak Q1 GDP figure reduced the likelihood of a May interest rate rise. In Sterling terms other regions were also positive, although not to the same extent: European equities gained 3.9% (3.8% in EUR), Japanese equities were up 2.7% (3.6% in JPY), US equities returned 2.2% (0.4% in USD) and Emerging Market equities gained 1.5% (down -0.4% in USD). Of particular interest during the month was that markets became more demanding of company earnings, punishing companies such as 3M and Caterpillar for more conservative than expected outlooks, despite reporting positive earnings surprises. With risk assets performing well it was perhaps to be expected we would see a negative month for government bonds. US 10Y Treasury yields increased from 2.87% to 2.95% over the course of the month, at one point breaking through the 3% level for the first time in over five years to peak at 3.03%. The action on US Treasuries dragged global yields higher, with UK 10Y Gilt yields increasing from 1.35% to 1.42%, although below the 1.65% seen in February. A tightening of Oil inventories has seen the price reach as high at $75, a gain of 8.5% in USD terms, while Gold fell -0.7%, suffering from strength of the US Dollar. Sterling gained 0.2% vs EUR and 1.0% vs JPY, but fell -1.8% vs USD.