May in the financial markets was again marked by the war in Ukraine, rising inflation and interest rates, and (the fight against) the coronavirus in China. However, the focus shifted somewhat to interest rates. Investors fear that central bankers will allow policy interest rates to rise quickly, which could jeopardize the growth of the economy. Even crypto markets seem to suffer from rising interest rates; bitcoin, for example, dropped through the USD 30,000 mark. Commodities ran up further across the board, even 10% or more for oil, gas and grain.
Shares
Although markets were fairly volatile last month, the MSCI World broad equity index remained fairly close to home with a 1.4% decline. Here Europe did relatively best (-0.8%); emerging markets (-1.1%) stayed close behind. North America fared somewhat less well with a negative return of -1.7%. The positive outlier was Latin America with a positive return of 6.5%. Thereby, value stocks (+0.4%) also outperformed growth stocks (-3.5%) in May. Due to higher oil and gas prices, the energy sector was the best performing sector this month (+10.3%). The threat of lower economic growth or even recession did consumer-linked sectors no favors (-4.9%).
Bonds
Developments are rapid in the interest rate and inflation markets, with high volatility. Although inflation (expectations) declined somewhat in May, interest rates and spreads on government bonds and other fixed income securities rose in Europe. German 10-year yields rose 0.18% to 1.12%. In the U.S., however, 10-year rates fell 0.09% to 2.85%. The risk premium for less risky and more risky corporate bonds rose to 1.60% (+0.10%) and 4.79% (+0.28%) respectively, yielding negative returns for the month of May.