The COVID-19 narrative continued throughout May, as it is likely to for some time yet, with the focus of most market commentators, and indeed markets, on the efficacy of the vaccine rollout and the global economic reopening.

The fact that global equity markets rose by 1.1% over the month of May belies the truth of what was a relatively volatile period for riskier assets as the topic of inflation moved from meaningful discussion to reality. Higher than expected inflation out of the US, reported mid-month, saw the S&P500 swing down as much as 4%, despite eventually posting a modest gain month-on-month. Concerns over inflation rippled across markets, in particular those areas that are closest to mass vaccination. The key challenges remain: how transient is inflation likely to be and how accommodating will central banks remain with their economies running hot?

While inflation was the headline grabber for equity markets, it was the continuation of leadership from value oriented sectors that really provided the engine of returns. It was the more cyclically sensitive areas that saw the greatest gains, with energy (+5.8%), financials (+5.2%) and materials (+3.8%) all worthy of note.

But sticking with the inflation theme, it is no surprise to report that commodities were the stand out asset class on the month, up 2.1% in May based on a broad basket of assets. Gold was up 7.7%, which is an asset that is considered to provide some inflation protection, and oil up 4.5% for the month and continuing its strong appreciation. This is an indication of an uptick in economic activity.

Turning to fixed income markets, the main surprise was just how sanguine the asset class remained with such an inflationary story leading the charge. There was a slight steepening of the yield curve further out (a fall in price being the other side of this move) suggesting slightly higher rate expectations, but it was not meaningful and returns were broadly flat to slightly stronger on the month for both sovereign and credit markets.

Finally to currencies and of particular note was the continued softening of USD, following on from April. This was particularly apparent against Sterling with the  US Dollar down 2.7%, although a shift of -1.7% against the Euro on the month is also worthy of a mention as this now wipes out any gains in the currency for the year.

FTSE 100 6969.81 7022.61
DJ Ind. Average 33874.85 34529.45
S&P Composite 4181.17 4204.11
Nasdaq 100 13860.76 13686.51
Nikkei 28812.63 28860.08
£/$ 1.3822 1.4212
€/£ 0.87011 0.86036
€/$ 1.202 1.2227
£ Base Rate 0.1 0.1
Brent Crude 66.76 69.32
Gold 1769.13 1906.87

This month’s values quoted as at 31/05/2021. The above values are sourced from Bloomberg and are quoted in the relevant currency.