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May Investment Review: Dancing on the Ceiling

by Haith Nori

May saw a mixed performance across global markets. In equity markets across Europe, including the UK there was a slight decline in overall value. However, US technology stocks continued to increase, as did Japanese Equities. Elsewhere in the US equity market performance was more mixed. Yields increased on both UK 10-year Gilts and US 10-year Treasuries. The US Debt ceiling has been a key focus over the course of the month, with the House of Representatives finally passing the bill at the end of May. The US Dollar, after a weak start to the year, regained value over the month of May. Tayyip Erdogan has now been elected for 5 more years as the President of Turkey, having already been in power for 20 years. The G7 Meeting also took place in Japan where global leaders met face to face and Ukraine’s President Mr. Zelensky continued to request support from other developed countries around the world.

On 3rd May 2023, the US Federal Reserve made the decision to increase interest rates by 0.25% from 5.00% to 5.25%, marking the highest level of interest rates reached in the past 16 years. On 5th May the European Central Bank also raised interest rates by 0.25% to 3.25%, this being the seventh straight hike in a row and with the previous three rate hikes all being 0.50%. Following suit, on 11th May the Bank of England also made the decision to increase interest rates by 0.25% to 4.5%, this being the 12th time in a row that the Bank of England has increased interest rates. The UK bank rate is now the highest it has been since 2008. The next meetings for the Federal Reserve, the European Central Bank and the Bank of England will be in June 2023.

On 10th May, US CPI data was released for the last 12 months ending in April. Headline inflation came in at 4.9%, 0.1% lower than that of March of 5%. Previous figures were 6.0% in February, 6.4% in January, 6.5% in December and 7.3% in November, highlighting inflation’s gradual decline since June 2022 (9.1%). On 17th May, Eurozone CPI data was released for the last 12 months ending in April of 7%, slightly up from March’s 6.9%. On Wednesday 24th May, UK CPI data was released for the last 12 months ending in April of 8.7% compared to 10.1% for March, 10.4% in February, 10.1% in January. This is down from its peak of 11.1% in October. Whilst this did not meet consensus expectations of 8.2%, it is the largest reduction in CPI data since the pandemic and has dropped below 10% for the first time in 8 months.

Ukraine’s President Volodymyr Zelensky has been requesting support across Europe before arriving in the UK on Monday 15th May. The UK Prime Minister Rishi Sunak said ‘Britain would provide Ukraine with hundreds of air defence missiles and further unmanned ariel systems, including new long-range attack drones with a range of more than 200km’[i]. The delivery is expected in the following months and will be combined with Britain beginning training of Ukrainian pilots this summer. In addition to the UK, Germany has vowed to send up to $3 Billion worth of arms and France pledged to train and equip Ukrainian battalions with dozens of armoured vehicles.

The G7 meeting was held between 19-21st May in Hiroshima, Japan where members stood united on various global issues including support for Ukraine, nuclear disarmament, China, clean energy economies, economic security, and climate change. US President Joe Biden has pledged $375 million in a military aid package with other G7 leaders pledging their continued support. Concerns over China were raised, including Beijing’s military activities against Taiwan and its use of economic coercion for its political gains. The G7 heads expressed their desire to work with China constructively but the existing issues needed to be addressed. However, ‘Beijing’s foreign ministry said it firmly opposed the statement by the G7’ and ‘said it had summoned Japan’s ambassador to China in a pointed protest to the summit host’[ii] highlighting the intensity of frustration and China’s newspaper the Global Times dubbing the G7 summit an “anti-China workshop”.

The US debt ceiling, which is the limit set by the US Congress on the amount of Government debt that can be accrued, has been in critical negotiations in May. Ever since the legislative cap was created in 1917, a majority vote is required by both the House of Representatives and the Senate. The vote raises the upper limit of how much the government can borrow. Since 1960, the debt ceiling has been raised 78 times but never reduced. The Democrats want the debt ceiling to be raised but the Republican leaders wish for spending cuts to be agreed first. President Biden is arguing that issues regarding government spending are separate from the issue of raising the debt ceiling.  Currently, the nation’s debt ceiling is $31.4 trillion and a deal is needed to be struck as Treasury officials estimated that if they were to continue spending at the current rate the US could run out of money by Monday 5th June. Finally, on Wednesday 31st May, The US House of Representatives passed a bill suspending the debt ceiling which will need to be signed by Joe Biden in order to be put into law. ‘The legislation suspends – in essence, temporarily removes – the federal government’s borrowing limit through Jan. 1, 2025’[iii] setting aside the issue until after the next US Presidential Election in November 2024.

Overall, May has seen mixed performance within asset classes. Brent Crude, after starting the month at levels of c.$80 per barrel, decreased over the course of the month ending at c.$73 per barrel. UK 10-year Bond yields and US 10-year treasury yields both continued to increase. Gold fell in value whilst the US Dollar rose.


[i] https://www.reuters.com/world/ukraines-zelenskiy-meet-british-pm-sunak-2023-05-15/

[ii] https://www.reuters.com/world/china/china-summons-japanese-ambassador-over-actions-g7-2023-05-22/

[iii] https://www.reuters.com/world/us/us-debt-ceiling-bill-faces-narrow-path-passage-house-2023-05-31/

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