Following the sharp correction last month, equity markets were relatively stable during May. The US market was flat while the UK and China both improved by 1.3%. The Australian market declined by 2.6%, however, it has been a standout performer so far this year due to the strength in the commodity related materials and energy sectors improving by 1% compared to a 13% decline in the US market.
Australian 10-year bonds yields increased 22 basis points following the Reserve Bank’s decision to increase the cash rate for the first time since 2010 by 25 basis points. Early in June they followed this up with a surprisingly large 50 basis point increase as the RBA attempts to suppressed inflation before it gets embedded in the wage setting process. US treasuries were stable as the 50-basis point increase in the Fed funds rate was largely anticipated by the bond market as are two more 50bp moves in June and July.
The Australian Federal election produced a change of government as expected but had very little market impact with the incoming administration yet to announce any major economic reforms.
In commodity markets, supply shortages saw energy prices spike higher with the oil price up 12%, natural gas 10% higher, and thermal coal up 30% for the month.
Australian dollar improved marginally against the US dollar increasing by about 1 cent to finish it 72 US cents.