The calm of the previous month ended sharply as May began, with Brexit arguments rolling on, the UK Prime Minister resigning, the European elections crushing the main parties, and Donald Trump imposing tariffs on Mexico and China. There was some positive light, however, from the emerging markets, with India, Russia and Brazil seeing economic gains.
UK
The British high street took a hit this month with the loss of Jamie Oliver’s chain of Italian restaurants, Boots’ decision to review the future of 200 stores and Marks and Spencer’s decision to close an as yet unspecified number of stores. Thomas Cook also revealed a loss of £1.45bn, seeing its shares fall 40%. Overall, retail shop vacancies are at a four year high.
There was better news away from the high street with the UK economy growing 0.5% in the first quarter and the Bank of England raising its growth forecast for the year from 1.2% to 1.5%. However, it also warned that interest rate rises might become more frequent.
The FTSE 100 Index closed down 3% at 7,162 while the pound was down against the dollar, closing the month at $1.2633.
Europe
Much of the continent’s news in May covered the European elections which saw the ‘Grand Coalition’ – the Centre-Right and Centre-Left groupings – lose significant numbers to more radical parties. In France, Marine Le Pen’s National Rally party defeated Emmanuel Macron by 24% to 22.5%. While in Italy, Matteo Salvini is reportedly preparing a new ‘parallel currency’, announcing ‘I do not govern a country on its knees’. Could this be the first step in taking Italy out of the EU?
Overall, the Eurozone economy grew in the first three quarters by 0.4%, though business confidence was said to have ‘crumbled’ according to a survey of more than 1,400 chief financial officers by Deloittes. Across the Eurozone, 65% reported the level of uncertainty as ‘high’ or ‘very high,’ with the US/China trade dispute and Brexit cited as the main reasons. Both major European markets fell in May. The German DAX index was down 5% to 11,727 while the French index fell by 7% to close the month at 5,208.
US
Strong labour data convinced the Fed to keep rates on hold as the US economy added 263,000 more jobs in April, with the unemployment rate now at its lowest since 1969. In company news, Facebook announced plans to launch a cryptocurrency to rival Bitcoin, and Ford said that it would need to shed 7,000 jobs as it looked to cut costs. On Wall Street, the Dow Jones index fell in the month, ending May down 7% at 24,815.
Far East
The trade war between the US and China intensified as the US re-imposed tariffs on $200bn of Chinese goods. China retaliated on 1st June by imposing tariffs of up to 25% on $60bn of US goods.
To add to the worries of a slowdown, analysts have started to ask if ‘winter is coming’ to the booming Chinese tech sector, with electric vehicles, industrial robots and microchip production all slowing down recently. In addition, big companies like Alibaba, Tencent and Baidu have all cut jobs, with one in five Chinese tech companies now planning staff cuts.
All the major stock markets in the region were down due to the trade war. Hong Kong was the worst affected, falling 9% to 26,901. The Japanese and South Korean markets were both down by 7% to 20,601 and 2,042 respectively, while China’s Shanghai Composite Index was down by 6% to end May at 2,899.
Emerging Markets
India saw the world’s largest democratic vote with 600m voting for a new Prime Minister – the victory went to the incumbent Narenda Modi by a landslide. One of the big questions is how Modi will handle the Indian economy. In his first term, India became the world’s fastest growing economy as he cut red tape and reformed the bankruptcy laws. But his biggest gamble, banning more than three-quarters of the notes in circulation in a bid to tackle corruption, backfired badly and delivered a significant blow to economic growth.
Brazil’s economy fell by 0.2% in the first three months of the year, the first decline since 2016. Despite this bad news, the Brazilian market still managed a gain of 1% in the month, closing May at 97,030. The Indian stock market rose 2% to 39,714 but the star performer this month was the Russian market, which rose 4% to finish the month at 2,665.
We hope you have great June and are preparing for a warm summer. If you have any questions about the latest stock market news, please don’t hesitate to get in touch.
