Monthly review and outlook - May 2021

  • 11 May 2021
  • 5 mins reading time


There were broad rises in the prices of global equities and bonds in April. Positive economic data and further pledges of financial support lifted investor optimism.


UK equities performed well. Economic data remained encouraging as the country took additional steps to ease lockdown restrictions. The Office for National Statistics confirmed that retail sales had surged in March, up 5.4% compared to one month earlier, and 7.2% on the year. These numbers were well above expectations of 1.5% and 3.5% respectively.

Meanwhile, the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) rose to 60.0 in April, from a final reading of 56.4 in March. That’s its highest level since November 2013. A reading higher than 50 indicates expected expansion, while below 50 indicates contraction.

US equity prices also made solid gains. The economic outlook in the world’s largest economy improved further. This was driven mainly by growth in consumption, but also supported by the Federal Reserve confirming its commitment to its on-going bond-buying programme and low interest rates. Positive corporate earnings also contributed to the picture. The big tech firms were particularly strong with the combined revenues of Alphabet, Amazon, Apple, Facebook and Microsoft jumping by 41% in the first three months of 2021. Meanwhile, by the end of March, 70% of the US population had received at least one vaccine shot.

It’s not been as smooth sailing on the continent though. Vaccine roll-out there has been rather patchy. Even so, eurozone shares started to catch up in April. The information technology sector was among the top performers, while energy registered a negative return.

The latest data showed that the eurozone economy contracted by 0.6% across the first quarter of 2021. However, forward-looking data were more encouraging with the manufacturing PMI survey reaching a new record high of 63.4.

Elsewhere, equity price rises were more modest. Chinese stocks rose after two consecutive monthly declines. The catalyst was a range of solid 2020/21 corporate earnings.


The sharp fall in demand for and prices of government bonds largely halted in April. The potential for a spike in inflation put a dampener on the immediate economic outlook. This nervousness combined with reassurance that central banks would continue to buy bonds which would help to sustain government bond prices.

The demand for and prices of corporate investment-grade (lower-risk rated) bonds continued to rise as investors anticipated a sustained recovery. This would support the ability of companies to maintain their bond and other debt obligations.

The demand for and prices of higher-risk rated bonds rose even more quickly than that of their investment-grade counterparts.


There were broad price gains across most commodities in April. Agriculture was the best-performing sector with strong gains recorded for corn and wheat. Prices of nickel, copper, natural gas and oil all posted price rises as investors anticipated greater demand from the nascent economic recovery.


Our analysis continues to indicate that the global economy is in a recovery phase. As a consequence, we are maintaining our preference for equities as we believe that equity prices are likely to be supported by rising earnings. What’s more, we see this situation playing out even if inflation and government bond yields were to make reasonably substantial rises over the coming 18 months.

This belief has driven our preference for “value” equities, those in sectors that did not fare so well during the lockdowns of 2020. We have made some nuances to this preference, the most recent being our belief that the prospects for value companies in the US are greater than those of Japanese and emerging market equivalents.

In fixed income, the short-term outlook has been one of price fluctuations in recent weeks. Investors have been weighing the stability of the economic recovery against mixed vaccination rates and the potential for rising inflation. Nonetheless, our analysis suggests that the longer-term trend is likely to be one of falling demand for and prices of bonds as the economic recovery progresses, financial stimulus continues and investors move money into higher-risk rated assets such as equities.

In the same context, we still expect the demand for and prices of most commodities to rise as the economic recovery plays out. So we are gradually increasing our preference for this asset class.

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