After rallying for four consecutive months, markets declined sharply in May (-5.7% for the Euro Stoxx TR index).
Deteriorating trade negotiations between the United States and China particularly weighed on equity markets in May. The US has raised duties on 200 billion dollars of Chinese imports from 10 to 25% and Donald Trump has stated his intention of imposing 25% tariffs on all remaining Chinese imports (around 325 billion dollars). In response, China has chosen to increase the duties on the 60 billion dollars’ worth of US imports that are already taxed to 25%, starting on June 1st. The situation took a turn for the worse when the US banned the transfer of technology, software and equipment from American to so-called “sensitive” foreign groups, a measure primarily directed at the Chinese telecom giant, Huawei.
Furthermore, macroeconomic indicators deteriorated sharply in the US (manufacturing and composite PMIs have tumbled to levels only just above 50) and in China (substantial decline in retail sales and industrial production) and have failed to improve in Europe (stable composite PMI at 51.6 for the Eurozone).
Finally, the political instability associated with the rise of populist parties during the most recent European elections also contributed to exacerbating investors’ fears, notably with regards to Italy (with renewed tensions between Brussels and Rome over the launch of an excessive deficit procedure).Theresa May’s resignation also added to these uncertainties, as Boris Johnson could potentially succeed as Prime Minister which would increase the risk of a “no deal”.
Amid this sharp risk aversion, safe-haven asset classes (bonds, gold) appreciated, while across equity markets, defensive stocks outperformed cyclicals.
The opinions and estimates constitute our judgment and are subject to change without notice, as well as assertions about trends in the financial markets, which are based on current conditions in these markets. We believe that the information provided in these pages is reliable, but it should not be considered exhaustive. These data, graphics or extracts were calculated or made on the basis of public information we believe to be reliable but which nevertheless have not been subject to independent verification on our part. Past performance is no guide to future returns.