In May, financial markets put the US regional banking crisis to one side and shifted their focus towards monthly economic data, the US debt ceiling and a chip maker called Nvidia.
Global equities, as measured by the MSCI World, fell 1% while global bonds, as measured by the Bloomberg US Aggregate index, fell 1.5%.
Time will tell if the knock-on effects of the US regional banking crisis exacerbate the wider economy. As larger financial institutions stepped in to support new depositors and businesses, there is a consensus that lending conditions will tighten – which should slow economic growth.
The debt ceiling grabbed the headlines during the month, on concerns that the US federal government would run out of money with the deadline beginning of June. At the time of writing, Joe Biden and Republican leader Mitch McConnell had come to an agreement with the vote expected to be passed through the House and Senate the first week of June. This would allow the US government to extend the 31.4trillion dollar debt cap without protest till US elections in 2025.
April US Nonfarm payrolls – which reflects the current employment situation in the US – remained resilient with new hires of 253,000 beating expectations of 179,000. The unemployment rate remained at record lows of 3.4% and wage inflation remained elevated at 4.4% but lower than the peak of 5.9% in March 2022.
April US headline inflation trended lower at 4.9% year over year while core Consumer Price Index (CPI) remained sticky at 5.5%. Lower airline fares helped depress the headline figure although inflation was strong in areas such as used car prices. Shelter costs which have kept core inflation elevated appear to be moderating.
As expected, the Fed (Federal Reserve) raised rates by 0.25% to take the benchmark overnight interest rate to a range of 5.0%-5.25% but interestingly opened the door to a pause in the tightening cycle.
