Markets in May
May saw US equities markets having a mostly negative month with the S&P 500 -0.76% MTD in May, the Dow Jones -3.51% MTD, while the Nasdaq 100 was +1.52% MTD. European equity markets also suffered from the tariff uncertainties, with the STOXX 600 -1.21 % MTD in May.
In the bond market, Treasury yield curves fell at the short and mid range and steepened at the long end on technical factors as tariff policy vacillations and weakening consumer sentiment data has strengthened fears of economic slowdown. The Fed looks unlikely to cut rates until it has greater clarity around the near- and medium-term impacts from higher tariffs or there is a material change in the labour market.
Although cuts in the euro area are expected, the uncertainty around tariff negotiations and the threat of growth slowdowns, means that rate cuts may be fewer than currently expected. The UK will walk a fine line between cutting rates to help grow the economy and concerns that inflation will remain well above target this year.
The economic picture
Despite the dollar experiencing significant fluctuations throughout the month, the dollar index for May is +0.28% MTD. The dollar’s volatility has been due to uncertainty over US tariffs, a ratings downgrade, and rising investor concerns around debt sustainability given projected rise in the US debt to GDP level and the budget deficit following the passage by the US House of Representatives of President Trump’s tax bill last week. Headline inflation rose by 0.2% m/o/m, up from March’s 0.1%, while core CPI, excluding food and energy, was up 0.2%, and down from February’s 0.2%. Headline CPI came in at 2.3% y/o/y in April, down from March’s 2.4% and the lowest since February 2021. Core CPI remained unchanged y/o/y from March, coming in at 2.8% in April. The US labour market continued to show strength in April with nonfarm payrolls increasing a seasonally adjusted 177,000 for the month, slightly below the downwardly revised 185,000. Nevertheless, the labour market is showing continuing resilience in the face of trade policy uncertainties and resulting market volatility. The unemployment rate remained steady at 4.2% in April. Average hourly earnings grew by a modest 0.2% m/o/m and 3.8% y/o/y. The labour force participation rate, at 62.6%, and the employment-population ratio, at 60.0%, remained largely unchanged in April.
On the growth front May Flash PMIs showed the US economy still performing, but confidence falling. The Flash Composite PMI in May came in at 52.1, up from April’s 50.6 and a 2-month high. The Flash services PMI came in at 51.2, up from April’s 50.8 and another 2-month high. The Flash Manufacturing PMI improved, coming in at 50.7, up from March’s 50.2 and a 2-month high. However, as noted by S&P, sentiment among companies about their output over the coming year was buoyed in part by reduced trade worries accompanying improved economic growth prospects. Confidence about the outlook rose to a four-month high in services and the best in three months in manufacturing. Consumers are also feeling more confident. The Conference Board's consumer confidence index increased by 12.3 points in May to 98.0, up from 85.7 in April. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose 4.8 points to 135.9. The Expectations Index—based on consumers’ short-term outlook for income, business, and labour market conditions—surged 17.4 points to 72.8, but remained below the threshold of 80, which typically signals a recession ahead. The University of Michigan consumer sentiment survey dropped to 50.8, a decrease from April’s 52.2. This decline was attributed to concerns about rising inflation, with consumers' 12-month inflation expectations rising to 7.3% from 6.5% in April. Tariffs were a significant issue for consumers, and were mentioned by nearly three-quarters of consumers, up from almost 60% in April. Consumers anticipated inflation to rise at an annual rate of 4.6% over the next five to 10 years.
In the UK, inflation surged in April, coming in at 3.5%, up from 2.6% in March. Core inflation rose to 4.5% in April, up from 4.2% in March. It is not certain if the BoE will cut rates again in June given persistent inflation. In addition, the sharp rise in the minimum wage may keep the BoE from cutting interest rates at this month’s meeting. The BoE cut rates 25 bps at the May meeting to 4.25%. On a positive note, the IMF upgraded the UK’s growth forecast to 1.2% for 2025, marginally higher than the 1.1% it predicted in April, before rising to 1.4% in 2026. This is despite headwinds from US tariffs that are expected to reduce annual output by 0.3%.
In terms of business activity in May, the S&P Global Flash Composite PMI for the UK came in at 49.4 in May, up from 48.5 in April. The Flash Services PMI rose to 50.2 from April’s 49.0. Manufacturing remained the major drag on the economy, with output falling in May at a rate not seen since October 2023. The Flash Manufacturing PMI came in at 45.1, down from April’s 45.4. As noted by Chris Williamson, Chief Business Economist at S&P Global, the further drop in output signalled in May means the composite PMI is indicating a minor contraction of GDP so far in the second quarter. Nevertheless, consumer confidence was slightly up in May with the GfK Consumer Confidence Index for May up 3 points to -20. However, the index remains well below its long-term average, reflecting continued caution among consumers. The improvement was due to slightly more optimistic views on both the economy and personal finances.
The labour market is starting to weaken, and although wages are falling, wage growth remains above the level necessary to achieve Bank of England inflation targets. According to the Office for National Statistics, the unemployment rate was 4.5% in January to March 2025, up from 4.4%. Average pay excluding bonuses fell to 5.6% in the period from January to March 2025 from 5.9% the previous in the period from December to February. Annual average total earnings growth for the private sector was 5.4% in January to March 2025. This was down on the previous three-month period, when it was 5.7%. The number of payrolled employees continued to drop, with businesses shedding 33,000 workers in April.
In the eurozone, inflation fell to 2.2% in March 2025, down from 2.3% in February. Core inflation, which excludes energy and food, edged lower to 2.4% in March from 2.6% in February. Services inflation also fell, coming in at 3.4% in March from 3.7% in February. This drop in inflation is being supported by cooling wages. Negotiated wages rose 2.4% from a year ago in the first quarter, down from 4.1% in the final three months of 2024 and less than half the 5.4% peak recorded last year.
On the growth front, the eurozone is contracting. The May eurozone HCOB Flash Composite PMI headed into contractionary territory and was down to 49.5 from April’s 50.4, hitting a 6-month low. The HCOB Flash Services PMI came in at 48.9, down from April’s 50.1 and a 16-month low. The HCOB Flash Manufacturing PMI rose for the third month in a row, coming in at 49.4, slightly up from April’s 49.0. As noted by S&P, this drop in private sector activity reflected a small reduction in services activity, which fell for the first time since last November and at the fastest pace in 16 months.
Global market indices
US:
S&P 500 +5.74% MTD and +0.12% YTD
Nasdaq 100 +8.93% MTD and +1.46% YTD
Dow Jones Industrial Average +4.12% MTD and -0.47% YTD
NYSE Composite +2.95% MTD and +3.05% YTD
The Equally Weighted version of the S&P 500 is +3.85% so far in May, 1.89 percentage points lower than the benchmark.
The S&P 500 Information Technology sector is the top performer so far in May at +10.62% MTD, while Health Care underperformed at -6.64% MTD.
Stocks rose in late-hour trading, driven by speculation that Nvidia’s Q1 earnings report will further invigorate the AI-driven market rally. This late surge followed a session where equities had extended losses during the final stretch of US trading on Wednesday, resulting in the S&P 500 closing down by -0.56%. The Nasdaq 100 declined -0.45%, while the Dow Jones fell by 245 points, or -0.58%.
In corporate news, Salesforce revised its annual sales forecast upward, suggesting that its AI agent product is poised to contribute substantial revenue.
HP's profit outlook fell short of estimates, leading the company to reduce its annual earnings forecast. This adjustment was attributed to a weaker economic environment and persistent costs stemming from US tariffs on goods imported from China.
Macy's reported better-than-expected Q1 results, indicating the effectiveness of its strategy to concentrate on its highest-performing locations despite weakening consumer sentiment and tariff volatility.
Abercrombie & Fitch increased its full-year outlook, signaling confidence in its capacity to navigate the evolving tariff landscape.
Honeywell International has agreed to collaborate with Elliott Investment Management. This cooperation will include the addition of a representative from the activist shareholder to its board, as the industrial firm prepares for a strategic division into three distinct companies.
Europe:
Stoxx 600 +4.07% MTD and +8.14% YTD
DAX +6.85% MTD and +20.74% YTD
CAC 40 +2.56% MTD and +5.52% YTD
FTSE 100 +2.72% MTD and +6.77% YTD
IBEX 35 +6.12% MTD and +21.61% YTD
FTSE MIB +6.70% MTD and +17.37% YTD
Source: FactSet
In Europe, the Equally Weighted version of the Stoxx 600 is +4.68% in May, 0.61 percentage points higher than the benchmark.
The Stoxx 600 Travel & Leisure is the leading sector in May, +11.23% MTD, while Health Care has exhibited the weakest performance at -0.69% MTD.
On Wednesday, within the STOXX Europe 600 sectors, the Industrial Goods & Services sector was one of the best performers. Within this sector, Aerospace & Defense showed strength, driven by continued investment in military ammunition companies due to the ongoing Russia-Ukraine conflict. Airbus also reported new orders, and Saab AB rallied after its Capital Markets Day. General Industrials saw gains as ThyssenKrupp AG's CEO defended the company's strategy.
In the Services sector, Rentokil Initial is set to sell its French workwear, flat linen, and clean room business to H.I.G. Capital for approximately €410 million.
Autos & Parts also moved higher, with Stellantis naming a new CEO. There's also speculation that Nissan Motor might sell its stake in Renault. In other news, Nissan is offering buyouts to US workers and suspending wage increases as part of global cost-cutting efforts.
The Food, Beverage & Tobacco sector underperformed. C&C Group was in focus after reporting full-year adjusted EPS of €0.12, exceeding FactSet's estimate of €0.11, and raising its dividend by 4% y/o/y. The company stated that current trading is encouraging and that its expected financial year outcome remains unchanged. Remy Cointreau shares fell after the company appointed Franck Marilly as its new CEO.
Technology declined ahead of Nvidia's earnings results. Soitec stock declined after its FY 2025 results confirmed a prior profit warning, with organic revenue down 9% y/o/y and an EBITDA margin of 33.5%, matching consensus.
Retail was also under pressure. Kingfisher's Q1 results failed to surpass expectations, even though sales of £3.3 billion and like-for-like growth of 1.8% exceeded estimates.
Global:
MSCI World Index +5.84% MTD and +4.35% YTD
Hang Seng +5.15% MTD and +15.94% YTD
Mega cap stocks have had a mostly positive performance in May in reaction to the expectation of trade tensions easing. Tesla +26.49%, Nvidia +23.77%, Meta Platforms +17.23%, Microsoft +15.71%, Amazon +11.01%, and Alphabet +8.54%, while Apple -5.68%.
Nvidia Q1 earnings. The company’s shares climbed approximately 4.6% in postmarket trading following the chip giant's announcement of continued booming sales, even in the face of business restrictions in China.
The company reported revenue of $44.06 billion, surpassing analyst expectations of $43.34 billion. Its data-center revenue saw a 73% increase, though this was slightly below FactSet's analyst estimates.
Nvidia's adjusted net income for Q1 reached $19.89 billion, marking a 31% rise from $15.24 billion last year. This figure includes a $4.5 billion charge for inventory related to chips designed for the Chinese market.
For the Q2, Nvidia projects revenue of $45 billion, plus or minus 2%. This is a bit shy of the $45.92 billion analysts had anticipated, and the company noted that this projection accounts for an estimated $8 billion in lost revenue due to export limitations to China. See report.
Energy stocks have experienced a slightly positive performance in May, with the Energy sector +0.31% MTD. Energy Fuels +17.38%, Marathon Petroleum +15.43%, Apa Corp +10.55%, Phillips 66 +8.37%, Occidental Petroleum +4.34%, Baker Hughes Company +3.62%, Halliburton +0.20%, and Shell +0.18%, while Chevron -0.03%, ConocoPhillips -5.09%, and ExxonMobil -3.33%.
Materials and Mining stocks have had a mostly positive performance so far in May. The Materials sector is +2.37% MTD. Sibanye Stillwater +27.72%, Celanese Corporation +21.16%, Mosaic +18.52%, Yara International +12.53%, Freeport-McMoRan +7.94%, and Newmont Mining +0.32%, while Albemarle -0.85%, and Nucor Corporation -8.82%.
Commodities
Gold is +0.05% MTD in May as concerns around US debt and deficit levels as well as the fluctuating tariff policies weighed on the US dollar. Gold is still +25.25% YTD.
Gold prices saw a slight decline on Wednesday, reflecting the ongoing volatility in the global economic landscape. Spot gold declined -0.35% to $3,289.31 an ounce.
Switzerland's gold imports from the US surged in April, reaching their highest monthly level since at least 2012. This increase followed the exclusion of precious metals from US import tariffs, according to recent data.
Looking ahead, investors are keenly awaiting today's GDP figures and tomorrow's Personal Consumption Expenditures (PCE) numbers.
Oil prices recovered in May with WTI +6.27% MTD and -13.59% YTD and Brent +2.85% MTD and -12.94% YTD.
Oil prices increased more than one percentage point on Wednesday, driven by worries about supply after OPEC+ maintained its current output policy and the US blocked Chevron from exporting Venezuelan crude. This came as a surprise to investors, who had largely anticipated OPEC+ members would agree to boost production later in the week.
Brent crude futures settled up 64 cents, or +1.00%, at $64.92 a barrel, while US WTI crude gained 72 cents, or +1.18%, reaching $61.87 a barrel.
OPEC+ decided to keep its output policy unchanged, though it did agree to create a mechanism for establishing baselines for its 2027 oil production. A separate meeting of eight OPEC+ countries is slated for Saturday, where a decision on increasing oil output for July is expected.
Further impacting supply, Chevron terminated its oil production, service, and procurement contracts in Venezuela on Wednesday. However, sources indicate the company intends to retain its direct staff in the country.
Iran's nuclear chief, Mohammad Eslami, stated on Wednesday that the country might permit the UN nuclear watchdog to send US inspectors to visit nuclear sites if talks between Tehran and Washington prove successful.
EIA report. Due to the Memorial Day holiday, the EIA report on crude inventories is due later today.
Currencies
The dollar had a difficult May due to concerns over the US deficit and debt level following the downgrade by Moody’s rating agency early in the month along with reservations over fiscal policy following the approval of President Trump’s tax bill by the House. It has also been weighed down by the continuing uncertainty over the Trump administration’s tariffs. The dollar index is +0.24% MTD and -7.94% YTD. The GBP is +1.04% MTD and +7.49% YTD against the USD. The EUR is -0.29% MTD against the USD and +8.88% YTD.
The US dollar gained ground for a second consecutive day on Wednesday, fueled by optimism that upcoming trade deals will improve the US economic outlook. Conversely, the Japanese yen weakened after the Japanese government noted soft demand for its 40-year bonds.
The dollar showed little reaction to the minutes released from the FOMC 6th - 7th May meeting. During that meeting, Fed officials acknowledged they might face ‘difficult tradeoffs’ in the coming months, anticipating rising inflation alongside increasing unemployment. This outlook was further supported by Fed staff projections that indicated increased risks of a recession. Despite these concerns, the Fed kept interest rates unchanged at the meeting.
The dollar index rose +0.32% to 99.88. The euro was last down -0.33% against the dollar, trading at $1.1293. Against the Japanese yen, the dollar strengthened by +0.36% to ¥144.78.
Demand at Wednesday's auction of 40-year Japanese government bonds fell to its lowest level since July. This decline comes amid a broader selloff in super-long debt throughout the current month.
Cryptocurrencies
Bitcoin +13.84% MTD and +15.69% YTD to $107,535.06.
Ethereum +47.52% MTD and -19.82% YTD to $2,645.66.
Bitcoin was -1.30% on Wednesday and Ethereum was -0.68% following the release of FOMC minutes which indicated that the Fed is likely to remain cautious and not cut rates any time soon as Fed officials warned they may soon face “difficult tradeoffs” as inflation remains stubbornly high and unemployment begins to rise. Bitcoin hit a record high last week, reaching almost $112,000 as investors considered easing trade tension between the United States and China, softer inflation numbers, and the downgrade of the US sovereign debt rating by Moody’s. However, Bitcoin appears to be currently consolidating between $107,000 and $109,000 as investors lock in profits. Bitcoin is also being supported by a 10 day streak of inflows into Spot Bitcoin ETFs which has now reached $4.26 billion. The most successful of these funds,BlackRock's IBIT, attracted $4.09 billion or 96% of the net inflows alone. As noted by The Block, the market is already worth $45.6 billion since its inception in January 2024.
Note: As of 5:30 pm EDT 28 May 2025
Fixed Income
US 10-year yield +31.5 bps MTD and -9.7 bps YTD to 4.479%.
German 10-year yield +9.7 bps MTD and +17.5 bps YTD to 2.544%.
UK 10-year yield +26.5 bps MTD and +14.3 bps YTD to 4.711%.
U.S. Treasury yields rose on Wednesday, breaking a three-day decline, as investors adjusted their positions in a session characterized by limited economic data. The initial ascent, however, moderated following a successful auction of five-year notes.
The sale of $70 billion in US five-year Treasuries demonstrated robust foreign demand. Notably, ‘indirect bidders,’ encompassing foreign central banks, acquired 78.4% of the auctioned notes. The sale cleared at a yield of 4.071%, which was lower than the expected rate at the bid deadline, indicating strong investor appetite for the notes and negating the need for a premium. The bid-to-cover ratio registered at 2.39x, a slight decrease from the previous month's 2.41x but consistent with the average of 2.38x. Primary dealers, who typically intervene when investor demand is weak, were allocated only 9.2% of the notes, marking the second-lowest on record, according to di Galoma.
In afternoon trading, the yield on the US 10-year Treasury note increased by +3.0 bps, having retreated from its intraday peak of 4.501% after the auction. US 30-year yields were up +2.7 bps at 4.990%, also down from their Wednesday peak of 5%, registering +30.2 bps MTD to 4.990%.
Meanwhile, the minutes from the latest FOMC meeting were largely as anticipated and had minimal market impact. The minutes revealed that officials acknowledged the prospect of ‘difficult tradeoffs’ in the coming months, specifically confronting rising inflation concurrently with increasing unemployment. The two-year Treasury yield, which typically reflects interest rate expectations, was up +1.7 bps to 4.004%, registering a monthly increase of +38.9 bps.
The German 10-year yield is +9.7 bps in May to 2.544%, while the UK 10-year yield is +26.5 bps MTD to 4.711%. The spread between US 10-year Treasuries and German Bunds has widened by 21.8 bps from 171.7 bps at the end of April to 193.5 bps now.
Current sentiment in the Fed funds futures market suggests that the Fed is most likely to resume its programme of interest rate cuts in September, with a 56.2% probability of doing so. According to CME's FedWatch Tool, markets priced in 43.9 bps of rate cuts this year on Wednesday, compared to 102.1 bps a month ago.
The Italian 10 year bond yield, a eurozone periphery benchmark, is -3.5 bps in May to 3.530%. Consequently, the spread between Italian and German 10-year yields currently stands at 98.7 bps, narrowing by 13.1 bps from 111.8 bps at the end of April.
Across the Atlantic, eurozone government bond yields saw a modest increase on Wednesday, concluding a four-day decline. This shift occurred as investors anticipate further developments regarding tariffs, which could significantly influence the economic outlook.
Germany's 10-year government bond yield rose by +0.4 bps to 2.544%, after touching 2.513% on Monday, its lowest point since 8th May. Similarly, Germany's 2-year yield climbed by +0.5 bps to 1.810%, up +12.2 bps MTD. On the longer end of the curve, Germany's 30-year yield increased by +2.1 bps to 3.030%. Throughout May the German 30-year yield has increased by +26.2 bps.
Market participants are currently pricing in a 90% probability of a 25 bps rate cut by the ECB next week. Furthermore, market indications suggest a deposit facility rate of 1.70% by December.
In contrast, Italy's 10-year yield experienced a marginal decline of -0.1 bps, settling at 3.530%.
Note: Data as of 6:00 pm EDT 28 May 2025
What to think about in June 2025
Can Trump’s tariffs continue? In a surprise move to market observers, a panel of three judges at the US Court of International Trade in Manhattan found on Wednesday that the US president did not have the authority to use the emergency economic powers legislation that he cited when he imposed sweeping global tariffs in April. The court ruled that the International Emergency Economic Powers Act, which President Trump invoked to impose the tariffs, does not authorise a president to levy universal duties on imports. The court gave the administration 10 days to “effectuate” its order, but didn’t spell out any steps it must take to unwind the tariffs. The ruling was a so-called summary judgment, meaning a final victory for the plaintiffs in lower court without the need for a trial.
According to Bloomberg news, the order applies to Trump’s global flat tariff, elevated rates on China and others, and his fentanyl-related tariffs on China, Canada and Mexico. Other tariffs imposed under different powers, like so-called Section 232 and Section 301 levies, are unaffected, and include the tariffs on steel, aluminum and automobiles.
The ruling was a response to two cases brought by small businesses and a group of Democrat-led US states. According to the Financial Times, one challenge heard by the court was from a group of US businesses that said the levies had harmed them, led by wine importer VOS Selections. The second was from 12 US states led by Oregon, which said tariffs would raise the cost to publicly funded organisations of buying essential equipment and supplies.
The ruling deals a potentially serious blow to President Trump’s economic agenda and the ongoing efforts to negotiate trade deals with various nations including China and those within the EU. It is expected that the US administration will appeal this ruling.
Key events in June 2025
The potential policy and geopolitical risks for investors that could affect corporate earnings, stock market performance, currency valuations, sovereign and corporate bond markets and cryptocurrencies include:
5-6 June ECB Monetary Policy Meeting. The ECB is widely expected to cut rates for an eighth time by 25 bps. However, Governor of the Bank of Greece, Yannis Stournara and Austrian central bank governor Robert Holzmann expect the ECB to pause after this cut while Executive Board member Isabel Schnabel and Bundesbank President Joachim Nagel have also urged caution on further loosening.
15-17 June 51st G7 Summit, Kananaskis (Alberta), Canada. This summit will likely include some discussion of tariffs. Canada has invited Mexico’s President, Claudia Sheinbaum, to attend but she has not yet agreed. Canada-Mexico relations have been at a low point in recent months as both countries try to deal with US President Trump’s tariffs.
16-17 June Bank of Japan Monetary Policy Meeting. The Bank of Japan Governor Kazuo Ueda has indicated that he intends to keep raising the benchmark interest rate if the economy improves as expected. However, markets are still expecting some caution, with another rate rise not anticipated until September.
17-18 June Federal Reserve Monetary Policy meeting. The Fed is widely expected to keep rates on hold during this meeting with the next cut not expected until September at the earliest. The FOMC meeting minutes indicated Fed officials' willingness to keep interest rates on hold for some time given the strength of the US economy. The minutes highlighted wariness around the risks of both higher unemployment and inflation, primarily due to the potential impact of tariffs.
19 June Bank of England Monetary Policy Meeting. It is not clear that the BoE will cut rates again at this meeting given persistent above target inflation and uncertainty remaining around US tariff policy. In addition, the near 7% rise in the minimum wage and higher payroll taxes may also influence policymakers. The International Monetary Fund (IMF) has said interest rates "should" continue to come down, making borrowing cheaper, though it acknowledged that MPC members at the BoE now have a "more complex" job to do in light of the rise in inflation and "fragile" growth.
24-25 June NATO summit, The Hague, Netherlands. This will be the first time a NATO meeting is held in the Netherlands. Discussions will likely focus around increased European defence spending and other commitments and the situation in Ukraine.
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