2H May Global Market Recap
15th May 2021 – 31st May 2021
Global cases have reached 170 million on 31st May, according to data from Johns Hopkins University. The worldwide death toll has hit 3.67 million, and U.S. is leading all countries with a death toll of 613k, followed by Brazil(473k) and India(349k). More than 2.2 billion vaccine doses have been administered across 178 countries, with a daily rate of 35.1 million doses according to Bloomberg.
Supply chain constraints continue to be a headwind for the manufacturing sector. U.S. durable goods orders month over month growth rate dropped by 1.3% in April after rising 1.3% in March, marking its first decline in 11 months. Non-defense capital goods, which tracks business investment, increased by 2.3% in April followed by a 1.6% increase in March. The Chinese National Bureau of Statistics said that China’s economic performance had stabilized despite the pandemic situation worldwide while the domestic recovery is not yet secure. Both industrial production and retail sales growth rate slowed down in April. Industrial Production was up 9.8% from a year ago in April, slower than the 14.1% growth rate last month but in line with consensus forecast by economists. Retail sales grew 17.7% on a year over year basis in April, much lower than the 25% growth rate expected by economists and the 34% registered in March.
China stocks were leading the market in May and ended at a three-month high on 31st May. The CSI300 Index rose 3.9% in May to 5,321, the highest level since 3rd March, while the Shanghai Composite Index advanced 4.5% to 3,618, reaching the highest point since 23rd Feb. Subdue industrial production data and disappointing retail sales data helped soft policy tightening fears, which had weighed on equity valuations and risk appetite for the past two months. U.S. stocks ended with mixed performances in May as investors awaited the FOMC scheduled on 15th June to assess whether Fed would take actions to address the inflation concerns.
The 10-year U.S. treasury yield decreased marginally in the month by 3.16bps, after surging by 82.7bps in the first quarter. The Fed reassured market that the central bank will be prudent in its monetary policy and that inflation is likely to be temporary as investors continue to focus on the state of inflation. The USD three-month Libor rate hit a record new low of 0.131% on 28th May, since its inception in 1986. The huge liquidity in the financial system has decrease demand for commercial paper and the drawdown of the treasury’s cash pile have facilitated the decline in the LIBOR rate.
Overall, the global credit market remains relatively stable and market sentiments remains positive as vaccination across countries continues. The Fed indicated that they would gradually sell the US$13.7 billion portfolio of U.S. corporate debt and exchange-traded funds it amassed through its Secondary Market Corporate Credit Facility, which was created during the March 2020 meltdown. This is a sign that the Fed is exiting the credit market after companies piled tons of cheap debt and investors bought bonds at some of the tightest levels. China’s domestic debt payable in the next 12 months sits at US$1.3 trillion while Chinese borrowers are defaulting onshore debt at an unprecedented pace. The Chinese government faces two major challenges of reducing moral hazards by allowing more defaults and turning the domestic bond market into a more reliable source of long-term funding.
The dollar index fell by 1.6% in May after three months of continuous rise since the start of the year. The Chinese Yuan appreciated by 1.6% in the month. The appreciation started to taper off in the first quarter but continued since the start of April. Most other major international currencies appreciated against the dollar as well.
Major commodities rose as well as the dollar weakens except for the Corn and Wheat prices. Brent and WTI crude oil prices rose in May by 3.1% and 4.3% respectively due to the OPEC+ strict restraints on supply and the global economic demand recovering, coupled with the slowdown in talks between the United States and Iran over Tehran's nuclear program. The CoreCommodity CRB Index hit a 6 year high with the index reaching levels back in mid-2015. Meanwhile, Bitcoin price drop by 35.4% and is its worst monthly fall in nearly three years. Prices hit a four-month low due to several major news in the month including Elon Must’s potential sale, Binance being under investigation and China’s bans on cryptocurrency activities by financial institutions.