Global shares advanced in May as concerns over tariffs eased. The US and China agreed a 90-day suspension of tariffs on most goods. Sovereign bond yields rose (meaning prices fell) amid rising worries over debt sustainability.
Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions, and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
Global equities
Developed market shares made gains in May following an agreement between the US and China to pause reciprocal tariffs for 90 days.
US shares were strong in May, recovering from April’s weakness. As well as easing tariff fears, shares were supported by some robust Q1 corporate earnings. The information technology sector led the gains while communication services and consumer discretionary were also strong. Healthcare underperformed. President Trump announced a reform of drug pricing.
Near month end, the US Supreme Court ruled that President Trump’s “Liberation Day” tariff proposals are illegal as he did not have the authority to use the emergency economic powers legislation that he cited when he imposed them. The White House is appealing the ruling.
President Trump’s budget bill (“Reconciliation Bill”) was approved by the House of Representatives and will now proceed to the Senate. The bill extends tax cuts passed in 2017, increases defence spending, and cuts spending on programmes such as Medicaid. Some investors fear the bill will add to the US deficit. Ratings agency Moody’s downgraded the US’s credit rating from the top Aaa rating to Aa1.
Data confirmed that the US economy contracted in Q1 2025, although the revised reading from the Bureau of Economic Analysis indicated a shallower drop of -0.2% compared to the initial -0.3% reading. The labour market remained resilient, with non-farm payrolls showing 177,000 jobs were added in April.
Eurozone shares advanced in May. Top performing sectors included industrials, information technology, and financials, while the healthcare sector lagged.
The eurozone flash composite purchasing managers’ index (PMI) dipped to 49.5 in May, a six-month low. PMI data is based on surveys of companies in the manufacturing and service sectors. A reading above 50 indicates growth, while below 50 indicates contraction.
Despite the tariff pause between the US and China, tariffs were still a source of market volatility. President Trump threatened 50% tariffs on the EU, starting from 1 June. However, negotiations were subsequently extended back to the original 9 July deadline. Shares fell amid the tariff threat but later recovered.
In the UK, the FTSE All-Share gained, led by the industrials and basic materials sectors. UK inflation jumped to 3.6% in April, a 15-month high, according to data from the Office for National Statistics. The news saw markets trim expectations for further interest rate cuts this year. Just one further 25 basis point cut is now anticipated.
The UK and EU agreed a deal to “reset” relations and deepen ties in the wake of Brexit. The deal covers a defence and security pact, fishing rights, and removes bureaucracy for farm exports.
The Japanese equity market rallied strongly, with the TOPIX Total Return up 5.1% and the Nikkei 225 gaining 5.3%, driven by strong large-cap performance. Market sentiment improved on positive news about trade negotiations between the US and China, easing recession concerns.
Many Japanese companies announced full-year results and guidance for the next fiscal year (ending March 2026). While earnings forecasts were conservative, shareholder returns through dividend hikes and buybacks rose significantly, reflecting continued corporate governance reforms and efforts to boost return on equity.
Emerging market (EM) equities rose during May, although the MSCI EM index lagged the MSCI World. The potential for a de-escalation in trade tensions supported shares following a temporary tariff agreement reached between US and China during the month. As a result, concerns about a US recession also eased. This combination was particularly beneficial for the index markets of Taiwan and Korea, both of which were supported by renewed investor optimism about artificial intelligence. South Africa and Mexico outperformed the index as currency strength and an interest cut in each market aided returns.
The UAE and Poland underperformed with the latter negatively impacted by political uncertainty ahead of a tightly contested presidential election. Despite the easing of tariff concerns, China lagged the broader index as did India and Brazil. India’s underperformance follows two months of strong returns in March and April, while Brazil’s flat performance (in US dollar terms) occurred against a backdrop of a weaker local currency and another interest rate hike.
The MSCI Asia ex Japan index rose in May. Top performing markets included Taiwan, Hong Kong, Indonesia and Korea. In Taiwan, technology stocks performed well amid renewed enthusiasm around the artificial intelligence theme, given capital spending announcements from some large US tech companies. Markets in Hong Kong and Korea benefited from some strong corporate earnings. Hong Kong is also benefitting from a surge in new listings.
Underperformers included Thailand and Malaysia. Chinese shares also lagged the benchmark’s gains. While the delay to tariffs came as a relief for equity investors, China continues to face headwinds from lacklustre domestic demand.
Global bonds
May was another volatile month for global bond markets. While a de-escalation of China-US trade tensions eased US recession fears, the market’s focus quickly switched to concerns around US fiscal sustainability. The Reconciliation Bill – which was approved by the House of Representatives and is now required to be passed by the Senate – was judged to worsen US debt dynamics, driving longer-end Treasury yields higher (yields are inverse to price).
Moody’s cut its US sovereign rating to Aa1 – aligning itself with the other major credit rating agencies. Meanwhile, on 28 May the US Court of International Trade ruled that President Trump’s administration did not have the authority to impose baseline 10% or reciprocal tariffs through the use of emergency powers (IEEPA). This complicates ongoing attempts to negotiate concessions from trading partners within the 90-day extension period (due to end on 9 July). Some tariffs – including those on autos – are exempt from this ruling.
While potentially removing some of the headwind to US growth, this could have broader revenue implications. Specifically for the Reconciliation Bill, there was the hope that tariffs would be used as a source of revenue to fund tax cuts. This renewed focus on debt sustainability catalysed a sell-off across global government bond markets, with US Treasury yields rising on the month.
Other high deficit countries were vulnerable to the sell-off. A combination of worsening fiscal conditions, and a structural supply and demand imbalance for Japanese government bonds (JGBs) prompted a significant bear steepening of the yield curve (where longer-maturity bonds incur comparatively larger losses than shorter maturities). The benchmark 30-year JGB yield peaked at an all-time-high of 3.2%.
The UK gilt market did not escape, with the shift higher in yields reflecting investors’ concerns about the country’s fiscal outlook. The Bank of England (BoE) cut its base rate by 25bps to 4.25%, but with April’s inflation data coming in higher than expected, the market is sceptical over the extent of future rate cuts.
European government bond markets in comparison had a much better month, with only modest yield rises in core markets – such as Germany. Peripheral markets outperformed, with 10-year yields in Italy actually falling slightly on the month.
Despite the ongoing uncertainty, risk assets continued to recover from the early April sell-off. Within investment grade (IG) corporates, US credit spreads tightened more significantly versus their Euro denominated counterparts, marking an outperformance. (Credit spreads are the difference in yield between a corporate bond and government bond, reflecting the additional risk investors take on when lending to corporations.)
US high yield was the biggest beneficiary of the improvement in risk sentiment. An easing of US recession concerns combined with a more conciliatory outlook on tariffs prompted strong investment flows into the asset class. The robust monthly performance was broad-based across sectors. Euro high yield also had a positive month but underperformed the US. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency. High yield bonds are more speculative, with a credit rating below investment grade.)
Among currencies, an initial rise in the trade-weighted US dollar index (DXY) was reversed in the second half of the month. Optimism around the apparent resilience of domestic economic data – particularly the labour market – was later overshadowed by deficit concerns and ongoing policy uncertainty. The dollar ended the month weaker against most major currencies (the yen being the notable exception) and almost all emerging market (EM) currencies. The euro was also among the weaker currencies with a further easing of monetary policy widely anticipated when the European Central Bank next meets on 5 June.
Commodities
In commodities, the S&P GSCI Index gained slightly in May. Gold fell as appetite for defensive assets waned amid improved appetite for riskier assets given the truce on tariffs. The agriculture component also delivered a negative return, with declines for coffee and corn. The energy, industrial metals and livestock components all registered gains.
Opec+ announced another increase in oil production for July, following two other recent increases. (Opec+ is a grouping of oil exporting countries, including the 12 Opec members and ten other oil exporters).
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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