It was a roller-coaster month for equity investors. After suffering some steep losses in early May, global equity markets regained some notable ground towards month-end. The MSCI All Country World was down by -0.1%. The S&P 500 was whipsawed throughout the month and saw seven trading days of moves bigger than 2%. After being on the brink of bear market terrain, the S&P 500 bounced-back to end the month virtually unchanged. The S&P/TSX lost -0.2%, while both international developed (+0.2%) and emerging market (+0.1%) benchmarks eked out a modest gain.
The profound rout in bond markets eased somewhat as unnerved investors bid-up safe haven assets. After breaking above 3%, the U.S. 10 year treasury yield reversed course and ended the month at 2.84% (-9 basis points). Meanwhile, the 2 year treasury yield fell by 16 basis points to 2.56% as investors reined-in their aggressive wagers for fed fund rate hikes following some preliminary signs of cooling inflation and after a Federal Reserve official floated the idea of a September “pause” in rate hikes. Canadian government yields barely budged, with the 10 year yield rising by 2 basis points to 2.89%, while the 2 year yield rose by 4 basis points to 2.66%. The Barclays U.S. Aggregate Bond index gained 0.6%, while the FTSE Canada Bond Universe was down -0.1%.
The unrelenting rally in the greenback stalled-out in May amid a convergence in global central bank policies that favored the euro (+1.8%) and the Canadian dollar (+1.7%). Specifically, the euro strengthened after the hawkish-tilt at the European Central Bank, with President Lagarde providing the clearest signal yet that liftoff will commence in July with an exit from negative rates by the third quarter. The Canadian dollar rallied after strong inflation data kept focus on the Bank of Canada’s rush to neutral, while higher crude prices also buoyed the loonie.
Finally, oil prices advanced for a sixth straight month, the longest winning streak since 2011. Prices have seen some remarkable strength alongside a tightening energy market, with the conflict in Europe curbing supplies at a time of robust global demand. Gold capped a second monthly decline, driven by the prospect of rapidly rising interest rates as the Fed tackles the hottest inflation in decades. Copper retreated as concerns over the darkening outlook for the Chinese economy deepened. Of note, factory activity contracted in May, highlighting the continued impact from COVID outbreaks and lockdowns on the world’s top metal-consuming economy.