• Equity indexes declined in May
  • China started to prop up its economy

In May 2022, equity markets witnessed large fluctuations. At the start of the month, investors’ willingness to sell intensified and the US S&P 500 index declined by nearly 19% from its peak reached at the start of the year. However, towards the end of the month, indexes started to rebound. World equity index declined by 1.45% over May, while the emerging market index contracted by 1.1%.

Major equity indexes YTD

Source: Bloomberg L.P.

Investors had to evaluate several important messages coming from major central banks. In its semi‑annual report, the US Federal reserve bank (FED) warned that the risk of sudden liquidity deterioration is “higher than normal” and “notable dysfunction” is seen in commodity markets amid the war in Ukraine. FED chairman Jerome Powell, in his most hawkish remarks to date, said the bank will keep raising interest rates until there is a “clear and convincing” evidence that inflation is in retreat. Market participants are still expecting that interest rates will be raised to 2% during the next two FED meetings. 

Nonetheless, in the second part of May, some investors started to increase risk exposure, expecting that inflation will peak soon and FED will no longer be pressured to raise rates. While it is not clear if this assumption is going to materialize and the rebound will continue, one thing is clear, that June and July inflation readings should be key events, which could sway investor behavior from one side to the other. 

Important message also came from European Central Bank (ECB). President Christine Lagarde announced, that the bank should stop bond net purchases via the Asset Purchase Programme (APP) and will start to raise interest rates in July and exit sub‑zero territory by the end of September. Previously, indications regarding interest rates revolved around the end of year. This will be a major shift in ECB monetary policy, as this will be first interest rate increase in more than a decade.

Positive news came from China, where the government has started to ease its strict COVID‑19 curbs after main cities reported fewer cases. China’s adherence to its “COVID Zero” policy at all costs was epitomized by the two‑month‑long lockdown in Shanghai and strictly restrained daily life of its 25 million population. China also cut its benchmark reference rate for mortgages by unexpectedly wide margin, its second reduction this year, with the government trying to help the struggling housing sector. Senior officials also pledged further measures to fight the slowdown.

“House view” update

No major changes in May, as the Luminor Investment management team decided to maintain lowered risk allocation budget and higher exposure to defensive sectors (utilities, healthcare and energy). High uncertainty about possible consequences of the war in Ukraine, tightening monetary policy and high volatility in the markets warrant such decision.

Luminor House View



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