Despite the prospect of ‘higher-for-longer’ interest rates, US equity markets rebounded in May, boosted by a strong performance from the technology sector.
- US CPI moderated to 3.4% YoY
- Investors continued to expect a rate cut in Europe
- Weakness in the yen continued
US markets hit fresh highs: despite the prospect of ‘higher-for-longer’ interest rates, US equity markets rebounded in May, boosted by a strong performance from the technology sector. The Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5%, citing a “lack of further progress” on reducing inflation; Fed Chair Jerome Powell reiterated that “it really will depend on the data”. Reports that consumer price inflation had eased from 3.5% year on year in March to 3.4% in April renewed hopes of a rate cut this year, propelling US equity markets to fresh highs mid-month. The rate of unemployment ticked up from 3.8% to 3.9% and the number of new jobs added in April was relatively muted at 175,000 compared with 315,000 in March. The Dow Jones Industrial Average Index rose by 2.3% over May.
“We believe we have turned a corner” (Paulo Gentiloni, European Commissioner for Economy)
Conditions improving in the eurozone: in its Financial Stability Review, the European Central Bank (ECB) confirmed that conditions have improved, supported by moderating inflation and improved investor confidence, but warned that the outlook is still fragile, and markets remain vulnerable to the risk of macro-financial and geopolitical shocks. European Commissioner for Economy Paolo Gentiloni commented: “We believe we have turned a corner”. The Dax Index rose by 3.2% over the month.
ECB to cut rates? Despite higher-than-expected inflation in the eurozone for May, the ECB is still widely expected to cut its key interest rate in June. The annualised rate of consumer price inflation rose by 2.6% in May, following April’s rate of 2.4%, while core inflation rose from 2.7% to 2.9%.
Yen weakness dampens sentiment: Japan’s economy shrank during the first three months of the year, contracting at an annualised rate of 2%. Against a backdrop of weakness in the yen , confidence amongst Japanese consumers deteriorated during May, and the Nikkei 225 Index edged up by 0.2%
US dividends hit quarterly record: global dividend payments rose to a first-quarter record of US$339.2 billion, rising at a headline rate of 2.4% and an underlying rate of 6.8%. Janus Henderson’s Global Dividend Index reported that 93% of companies maintained or increased their dividend payouts. The US achieved an all-time quarterly record, and Sweden and Canada broke first-quarter records. At sector level, banks accounted for a quarter of underlying annualised global dividend growth during the period.
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