In May, strong corporate earnings and positive economic data contributed to the rise of both equities and fixed income investments. In developed markets, inflation showed signs of easing, alleviating concerns about a prolonged period of high inflation.

This was particularly notable in the US, where inflation declined as expected after three consecutive readings that exceeded expectations in the first quarter. Additionally, forward-looking indicators such as purchasing manager indices (PMIs), which is an indicator used to measure the economic health of the manufacturing and services sector indicated expansionary conditions in developed markets. In the US, the composite PMI reached its highest level since April 2022. Europe and Japan also experienced increases in PMIs, although to a lesser extent compared to the US.

In local currency terms, global equities experienced substantial gains in May, primarily driven by the information technology, utilities, and communication services sectors. However, the energy sector underperformed due to lower oil prices. Notably, several of the “Magnificent 7” stocks (Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Meta Platforms and Tesla) performed well, benefiting from strong earnings and increased demand for AI-related technologies.

The domestic bond market returned a modest 0.9% this month despite market expectations for the RBNZ’s first full rate cut being pushed out to February next year. The New Zealand 10-year yield ended the month at 4.82% (down from 4.93% last month). The Standard & Poor’s (S&P)/New Zealand Exchange (NZX) 90 Day Bank Bills Index returned 0.5%.

The NZD experienced a significant rebound this month, driven by general weakness in the USD and increased investor risk appetite. The NZD was up 1.4%, 3.8%, and 3.7% against the AUD, USD, and JPY, respectively. Over a 1-year period, the NZD is up 15.3% against the JPY, which has been steadily sliding for the last three years and has lost nearly a third of its value since the beginning of 2021.

Significant developments for May:

• The New Zealand Government released the 2024 Budget, which focused on fiscal responsibility, tax relief and targeted investments in public services and infrastructure. The impact on local markets was relatively muted, and the expected tax cuts are yet to be factored into the Reserve Bank of New Zealand’s (RBNZ’s) forecasts.
• UK Prime Minister Rishi Sunak has called for a surprise snap general election to be held on the 4th of July. This decision presents a potentially challenging outcome for the current government based on recent opinion polls.
• On the 30th of May, Trump Media & Technology Group shares fell as much as 15% after former US President Donald Trump was found guilty on all 34 counts of falsifying business records. Despite officially becoming a convicted felon, Trump is still eligible to run for President in the upcoming US election – set to take place in November.