Following a period of heightened uncertainty, confidence returned visibly to capital markets in May. The main catalyst was the diplomatic easing of tensions in the Middle East and the emerging path towards a ceasefire involving the US, Israel and Iran. This reduced concerns about a further escalation in a geopolitically highly sensitive region, which in previous weeks had weighed on markets mainly due to the potential implications for energy prices, supply chains and overall risk appetite. On a month-on-month basis, the Brent oil price rose only moderately, from USD 90.38 to USD 95.33 per barrel.
Equity markets accordingly delivered a firm performance. The major indices moved higher, with growth and technology stocks in particular attracting investor attention. The sector benefited from several supportive factors at once: improving risk appetite, persistently high expectations for investment in future technologies, and hopes that the interest-rate environment will at least not tighten materially further over the course of the year.
Euro area inflation rose to 3.0% in April. In previous months, at 2.6% and 1.9%, it had been considerably closer to the ECB’s 2% inflation target. The ECB is heading towards a rate hike in June, with markets expecting one further move by year-end. In the US, markets are no longer pricing in a rate cut by the Federal Reserve this year, despite public calls from the US President directed at the Fed’s new Chair, Kevin Warsh. One reason for this is the higher inflation rate in the US, which reached 3.8% in April, up from 3.3% in the previous month.
In sovereign bond markets, yields in the US and Germany developed unevenly over the month. The yield on 10-year US Treasuries rose by 6 basis points by month-end, closing at 4.44%. By contrast, the yield on 10-year German Bunds fell by 10 basis points, from 3.04% to 2.94%. The yield on 10-year Italian government bonds declined even more sharply, falling by 21 basis points to 3.65%.
Corporate bond markets also showed a mixed picture. The yield on euro-denominated investment-grade bonds declined from 3.61% to 3.48%, while the yield on US dollar-denominated investment-grade corporate bonds remained unchanged at 5.13%. In the high-yield segment, yields on US dollar-denominated corporate bonds fell by 2 basis points to 6.96%, while yields on euro-denominated paper declined by 15 basis points to 5.81%.
Gold prices were weaker, particularly in the second half of the month, and closed at USD 4,536 per ounce. The US dollar appreciated slightly against the euro to 1.166.
Legal notice
This is a marketing advertisement. All information published here is for your information only and does not constitute investment advice or any other recommendation. The statements contained in this document reflect the current assessment of DJE Kapital AG. These may change at any time without prior notice. All statements made have been made with care in accordance with the state of knowledge at the time of preparation. However, no guarantee and no liability can be assumed for the correctness and completeness.