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May 12, 2021

Special Focus: May Market Review

With April’s data points in, this week we take a whistle stop tour of the wider global market.

April saw expectations for strong growth become reality, particularly for the economies managing to get a handle on the pandemic. Especially in the US where, even as job growth suffered, wages increased and the unemployment rate rose as more Americans returned to the labour force.

After the highs of March, global equity markets had yet another strong month whilst long-dated bond yields faded from their March peaks, posting only modest gains. Perhaps unsurprisingly, Developed Markets equities outperformed Emerging Markets, with many commentators attributing this to the rise of covid-19 variants damaging currencies and stock markets in countries such as Brazil and India, key constituents of the emerging markets index.

In fixed income markets, risk-on sentiment favoured the riskier end, with Emerging Markets debt outperforming, closely followed by Investment Grade credit and inflation linkers. Meanwhile, the search for yield was fundamentally detrimental to European government bonds’ performance.

In terms of asset classes returns, commodities continued to be well supported coming on the back of optimism for economic recovery. This was borne out by strong performances from Oil (+7.1%),industrial metals (+8.8%), and Gold (+3.6%).

In keeping with the strength of the US recovery, and the confidence in its continued growth, American stocks once again outperformed their European andJapanese counterparts, mirroring their relatively slower economic recoveries.

Ultimately, despite a few bumps in the road, global markets performed as expected, with the fates of countries’ currencies and markets depending heavily on their ability to navigate the pandemic. While variants delayed the progress of Emerging Markets, it is still widely expected that their ultimate recovery has only been delayed, and that meanwhile the developed economies will move from strength to strength as restrictions ease. For now, April’s signs largely confirm expectations; whether May will confirm this trend, we’ll have to wait and see.

  • Indian PMI figures mask worsening situation
  • May Market Review

Indian PMI figures mask worsening situation

While India’s PMI figures from April suggest only a slight slip, from 54.0 to 54.6 in March, these numbers paint a far rosier picture than the underlying grim reality. The surge in COVID cases has led to manufacturers reporting their smallest increase in output and new orders in eight months, while purchase of inputs has been the strongest in a decade indicating that companies are looking to secure supplies ahead of tighter restrictions. Meanwhile, local restrictions across India continue to be extended, limiting mobility, workplace attendance and retail figures at the national level. Despite this, the Royal Bank of India is adamant that this second COVID wave is temporary, and does not intend to cut rates any further. Whether this remains the case will very much depend on the course of the pandemic.

US jobs figures provide surprise disappointment

The US April jobs report released on Friday surprised many by dipping despite strong indicators suggesting otherwise. April payrolls of +266k were well below the consensus of +1m, and were mainly driven by zero growth in construction and a drop in manufacturing jobs. While services posted gains of 234k, this was much below the 542k registered in March. While some have speculated President Biden’s job support programme may be disincentivising jobseekers from hurrying back to work, the truth is this is only one month’s surprise data point, and it will take another month or so of data to establish a clearer sense of whether this development is part of a trend or just a blip.

  • 18th May: EU releases growth rate QoQ and YoY second estimate
  • 18th May: Japan’s QoQ growth data is released

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