COVID-19 related lockdowns in China, the ongoing Russia-Ukraine conflict and concerns about persistently high inflation all weighed on investor sentiment during the month.
Australian large cap equities fell 2.2% for the month with materials the only sector that was positive, albeit very slightly. On the other hand, the consumer discretionary and consumer staples sectors moved sharply lower during May, with a combination of increasing official cash rates leading to lower discretionary income for consumers combined with ongoing supply chain issues and margin pressures weighing on the near-term outlook for both sectors.
The US equity market (as measured by the S&P 500) briefly entered bear market territory on 20 May, down over 20% from the high achieved in January 2022. However, a strong rebound (+8.4% from its lows) saw US equities finish flat for the month.
Currency hedged international equities edged slightly lower falling 0.2% during the month whilst a rising Australian dollar (up 1.6% buying US$0.7177) escalated losses for international unhedged equity investors to -0.8%.
The Reserve Bank of Australia (RBA) raised interest rates from 10bps to 35bps at the beginning of May, the first increase in the RBA cash rate since 2010, in an effort to curb inflation and address demand/supply imbalances. Many central banks around the world are now tightening monetary policy, including the US Federal Reserve which lifted the target cash rate range by 50bps, to 0.75-1.00%.
In Australia, the federal election saw Anthony Albanese elected as the 31st Prime Minister of Australia. The Labor party was elected with a two-seat majority in the House of Representatives, while the Greens and several environmentally-focused Independents captured a large swathe of seats.
The Australian 10-year government bond yield increased by 22bps to 3.35% & the 2-year government bond yield rose by 2bps to 2.47%. US yields, despite the aggressive Federal Reserve rate hike, marginally fell with the 10-year government bond yield falling 9bps to close at 2.84% and the 2-year government bond yield dropping by 15bps to 2.56%.
All eyes are focused on global central banks, as many of them attempt to thread the needle by controlling inflation through tighter monetary policy while at the same time avoiding sending economies into recession.
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