The peaceful days of 2017 are long gone, and after the furious January market melt-up, the February vol explosion, the March tech crunch, the April dollar and rate spike, the month of May was perhaps the most memorable of all.
And while May featured a mini EM-collapse, ongoing trade disputes between US and China and geopolitical tensions there is little doubt that the month will be best remembered for the Italian political developments in the last week or so. Indeed, as Deutsche Bank’s Jim Reid writes, the huge selloff across BTPs (-6.7% in local currency terms) stands out most when looking at Deutsche Bank’s monthly performance charts and indeed this was the biggest one-month fall for the BTP index since the German bank started collating monthly data at the start of 2007.
So May eclipsed anything seen during the Euro sovereign crisis although part of that will be down to duration as there are comparable monthly yield moves between May 2018 and in 2011. Italy’s FTSE MIB (-8.0%) also suffered its worst month since the Brexit-impacted June 2016, as did European Banks (-8.1%). European High Yield (-1.4%) had its worst month since the energy crisis in December 2015 while European Sub Bonds (-1.8%) had their worst month since June 2015.
So some impressive stats. That said the spread of returns across assets was still relatively mixed. In local currency terms 20 out of 39 assets ended with a positive total return while 13 did so in USD terms.
Looking closer, the selloff for BTPs was really contained within the periphery last month with Spanish Bonds also falling -1.8% in local currency terms. In contrast, Gilts (+1.8%), Bunds (+1.7%) and Treasuries (+0.9%) all benefited from safe haven flows however it’s worth noting that EM Bonds lost -4.0% following various country-specific (Argentina and Turkey being examples) reasons earlier in the month.
It’s a similar story for equity markets too. As well as the decline for the FTSE MIB and European Banks, the Spanish IBEX lost -5.1% and the Greek Athex -11.7%. The Bovespa (-10.9%) and EM Equities (-3.5%) also tumbled while the Nikkei (-1.2%) was also slightly weaker last month. Interestingly the Portugal General actually rallied +2.8%, bucking the periphery weakness, while the FTSE 100 (+2.8%), S&P 500 (+2.4%), Stoxx 600 (+0.2%) and DAX (-0.1%) largely shrugged off the Italy news. It’s worth noting that returns for the latter indices were generally flat to slightly negative in Dollar adjusted terms though.
For credit, unsurprisingly Europe lagged the US with IG Non-Fin and Fin Sen also flat to down -0.3% respectively in addition to the bigger declines for the higher beta markets. US credit was flat to modestly positive led by IG (IG Non- Fin +0.5% and HY +0.2%). Note that all broad US/Euro credit categories under-performed their respective Government index in May.
Finally, commodities were also more mixed last month. Interestingly there was a large divergence in the Oil complex with Brent rising +4.6% and leading all assets but with WTI down -2.2%. Gold fell -1.3% while softs like Wheat (+2.7%) and Corn (+0.4%) rose slightly.
Looking back at the full returns, following May’s moves, the YTD picture is a lot more mixed now with only 17 out of 39 assets in positive territory in local currency terms and just 12 in dollar terms.Commodities lead the way easily with Wheat (+23.2%), Brent (+19.1%), Corn (+12.3%) and WTI (+11%) holding the top 4 spots. The moves for BTPs in May mean they have lost -4.3% YTD now while Bunds (+1.5%) and Gilts (+1.0%) are slightly positive. Treasuries (-1.1%) have pared losses. In equity markets, after being one of the top performers through April the FTSE MIB is now up just +1.6% YTD.
European Banks are also -9.3% and the IBEX -4.4%. However the S&P 500 (+2%) is back to positive territory joining the Stoxx 600 (+0.7%). Credit markets remain negative across the board. In Europe returns are -0.3% (IG Non-Fin) to -2.7% (Fin Sub) while in the US returns are -0.1% (HY) to -4% (Fin Sub).
via RSS https://ift.tt/2H9ednL Tyler Durden