 UK - Conflicting data fuels volatility |
· The UK stock market suffered considerable volatility in May as nervous investors took their lead from Wall Street; the FTSE All-Share Index traded 2.0% lower in dollar terms. Disappointing data releases on manufacturing output, inflation and unemployment stoked fears of an economic downturn, although buoyant retail sales volumes struck a contradictory note. Despite announcing a one-off loss of GBP23 billion, telecoms blue-chip Vodafone rallied after releasing plans to return another GBP3 billion to shareholders.
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| US - Inflation fears trigger sell-off |
· The S&P Composite Index retreated 2.9% in US dollar terms during May. The sell-off was sparked by fears that interest rates would have to rise further to combat the threat of inflation. It appeared that the lagged impact of high energy and commodity prices was finally being felt by both industry and the consumer. Investor sentiment was undermined further by a slide in the value of the dollar and weak retail sales figures. Despite the gloom on the markets, indicators confirmed the strength of the economy. Commerce department data for the first quarter suggested it was growing at its fastest rate for two years.
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| Europe - Equities underpinned by M&A |
· European equities were not immune from the turbulence on global equity markets: the FTSE World Europe ex UK Index fell by 2.9% in dollar terms in May. Newsflow from the core eurozone economies was mixed. Germany released encouraging data on
employment and retail spending, but in France confidence was weak due to simmering discontent with government policies. Corporate activity remains an important catalyst of market growth, however, and research suggested that cross-border M&A is flourishing at almost record levels.
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| Japan & the Far East - Good news on Japanese economy |
· The Japan Topix Index slipped by 6.2% in dollar terms in May, although evidence emerged to suggest that the economy was reflating healthily. During the month the consumer price index reached an eight-year high and the Bank of Japan revised up its estimate of economic growth. Industrial production figures were also very encouraging. The MSCI Asia Pacific ex-Japan Index was also weak, falling by a dollar-adjusted 6.9%. Sentiment was supported to a degree by a belief that interest rate moves across the region would lag those in the US.
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| Bonds - Fixed income benefits from safe-haven status |
· Government bond markets were steady as a consequence of investors' increased sensitivity to risk. Unswayed by fears of further monetary tightening by the Fed, the market, as measured by the JP Morgan Global Government Bond Index, rose by 1.8% in dollar terms during May. Corporate bond markets were also resilient, with both the investment grade and high yield sectors drawing strength from the continued robustness of company earnings and the prospect of supply becoming tighter over the summer months.
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