Market tensions ease but ambiguity remains

Green shoots

Easing tariff tensions were the major catalyst for global equity markets and the US and China made progress in their trade discussions, a key factor that had been worrying investors. In the US, markets performed strongly, with technology shares showing particular strength.

European markets also showed resilience. There were indications of a rebound in industrial activity and potentially more accommodating policies from the European Central Bank. Asian markets, including China, also saw lifts, encouraged by the trade talk developments and some supportive measures from China's central bank.

Economic data not as bad as feared

Global growth forecasts remained a mixed bag. Some international organisations like the IMF suggested that overall global economic growth might be a bit slower this year than previously hoped, partly due to the ongoing effects of trade tensions. However, the immediate fears of a sharp downturn seemed to lessen during May.

Inflation continued to be a hot topic. Data released in May suggested that while inflation is still present, there were signs in some major economies, like the US and EU, that price pressures might be starting to ease, albeit gradually. This is an important factor, as it can influence when central banks might increase rate cuts.

Speaking of interest rates, the Bank of England made a move in May, cutting its main interest rate. This was seen as a step to support the UK economy. Generally, lower interest rates can make borrowing cheaper for individuals and businesses, potentially encouraging spending and investment.

Company earnings resilience

The first quarter earnings season (which often sees reports continuing into May) painted a generally positive picture, particularly for large US companies. Many reported better-than-expected profits, contributing to the positive market sentiment. Technology firms, especially those involved in artificial intelligence (AI), continued to show strong performance, indicating ongoing investment and growth in this area.

However, it was not all smooth sailing. Some companies expressed caution for the future, citing uncertainties around trade policies and potential impacts on their costs and sales. 

Other notable news

Gold, often seen as a safe haven in uncertain times, continued to attract interest, though its price saw some fluctuations. Oil prices remained weak on the back of expected excess supply from major oil exporters.

The US dollar continued to weaken against other major currencies, which can have various impacts, including making US exports more competitive and affecting returns for non-dollar-based investors.

Looking ahead

May provided a dose of encouragement for investors, with markets reacting positively to easing trade tensions and resilient company performance. However, the broader economic outlook remains clouded by persistent uncertainties - most notably around global tariffs, inflation dynamics, and geopolitical developments. 

As we move into the summer months, investors will be keeping a close eye on central bank signals, economic data releases, and any further developments in international trade relations to gauge the market's direction. Diversification and a focus on long-term trends remain sensible approaches in this evolving environment.