Regional performance
The US continued to lead developed markets, with the S&P 500 up ~5%, though gains were more broadly distributed than April's mega-cap-driven surge. The Magnificent 7 cohort (+6%) continued to deliver robust gains with Tesla (+15.8%) and Apple (+15.3%) leading the group. Nvidia (+7.4%) also saw strong gains after reporting record quarterly revenue of $81.6 billion, underscoring the continued strength of AI infrastructure demand. However, the AI capital expenditure narrative remained prevalent as investors continued to scrutinise the sustainability of hyperscale debt-funded spending. European markets also advanced, with the Euro Stoxx 50 rising ~3.9% as falling oil prices provided some relief to energy-import-dependent economies, though the prospect of a rate hike in June tempered enthusiasm. Asian markets delivered a broadly strong performance with the MSCI Asia Pacific Index advancing 6.6%, driven overwhelmingly by the AI-fuelled semiconductor surge in South Korea (KOSPI Index: +24%) and Taiwan (TAIEX Index: +12.1%). Japan's Nikkei 225 also posted solid gains of +9.1%, while performance was more subdued elsewhere – India's Nifty 50 fell marginally (-0.2%) and Hong Kong's Hang Seng declined 2.4%, with China continuing to face headwinds from slowing economic momentum. The JSE All Share Index (ZAR terms: +0.1%, USD terms: +3%) delivered a muted performance despite Moody's revision of South Africa's credit outlook to 'positive' and the rand's appreciation to its strongest level since February. Investors then turned their attention to the South African Reserve Bank’s (SARB) interest announcement.
Central bank policy stance
Most offshore central bank announcements will take place in the upcoming weeks with forward guidance and official commentary continuing to dominate the headlines. In a notable domestic development, the SARB raised its repo rate in line with expectations by 25-basis points (bps) to 7%, the first hike since 2023, in response to rising inflation risks linked to global pressures. Inflation increased to 4% in April from 3.1% in March, prompting the central bank to revise its inflation forecasts upward to 4.4% for 2026 and 3.7% for 2027. At the same time, growth expectations were downgraded to 1.2% for 2026 and 1.7% for 2027. The SARB emphasised the potential for second-round inflation effects from overlapping shocks and indicated that further monetary tightening may be necessary, with all alternative scenarios pointing toward additional rate increases.
Commodities: Energy retreats from wartime highs as peace hopes build
The most significant commodity price development in May was the sharp retreat in crude oil from April's wartime highs. Brent crude fell from above $115/barrel at the end of April to trade around $94/barrel by late May, as growing optimism over US-Iran negotiations raised hopes for a Strait of Hormuz reopening. However, the decline was not linear, with prices swinging sharply on conflicting signals about a ceasefire extension. Precious metals remained under pressure, with gold falling ~2.7% due to a stronger US dollar and higher real yields amid persistent energy-driven inflation that kept central banks hawkish. Silver also remained subdued, trading around $75/ounce (oz.), significantly below its January 2026 peak of $115.08, while platinum declined ~3.3%. The Bloomberg Agriculture Spot Index retreated modestly as some supply disruption fears moderated relative to April's elevated levels – though the index remains historically elevated given ongoing Hormuz-related fertilizer and oil shipping disruptions.
Cautious optimism as ceasefire extension hangs in the balance
Markets will enter June with cautious optimism, but the path forward depends heavily on whether the proposed ceasefire extension holds and translates into a genuine Hormuz reopening. An agreement that shipping through the Strait of Hormuz will be "unrestricted" could materially reduce energy price pressures and allow central banks more flexibility going forward. However, the pattern seen over the past month, which includes repeated ceasefire violations, conflicting signals from Washington and Tehran, as well as Iran's recent launch of a ballistic missile toward Kuwait, underscores the fragility of any agreement.
Outlook
Local
- The global economic outlook in 2026 remains highly uncertain, with growth under pressure from the Middle East conflict, elevated energy costs, and policy uncertainty in the US. Tightening financial conditions, shifting trade dynamics, and structural changes are weighing on activity, particularly in emerging markets. Risks are firmly to the downside, although some support from looser fiscal policy and AI-driven investment could help cushion the slowdown.
- South Africa’s near-term economic outlook has weakened, reflecting the combined impact of an external energy shock and softening tailwinds that have this far supported domestic conditions. Rising cost pressures and heightened uncertainty are weighing on activity, while a sharp deterioration in the labour market - marked by broad-based job losses and rising inactivity, highlights deepening socioeconomic vulnerabilities.
- Domestic inflation has picked up, with headline CPI rising to 4.0% y/y in April from 3.1% in March, driven by higher fuel and transport costs linked to the war-driven supply shock. The outlook has therefore worsened, with 2026 expectations shifting from around 3% to above 4%, reflecting persistent oil pressures and supply-side risks.
- From a policy perspective, the focus has moved to the pace of tightening. While the Monetary Policy Committee is willing to look through initial fuel effects, it remains alert to second-round pressures and unanchored expectations. The proactive 25bps rate hike at the May meeting may be followed by a more aggressive response should surveyed expectations lift significantly.
- Overall, the outlook is marked by heightened uncertainty and rising downside risks as global shocks interact with domestic vulnerabilities. Elevated energy costs, tighter financial conditions, and a weaker labour market are expected to weigh on growth, while persistent inflation risks keep monetary policy hawkish, adding downside risk to activity.
Global
- May was still dominated by the war in the Middle East between allies the US and Israel against Iran. A ceasefire was called on 8 April, but negotiations for a longer lasting resolution are proving elusive. The Strait of Hormuz is effectively closed, and oil prices remain elevated. Hope for a resolution towards the end of May increased and oil prices came down 15% for the month.
- Economic data out of the US was mostly stronger in May. Employment data for April surprised to the upside with 115 000 new jobs and the unemployment rate remained steady at 4.3%. Bloomberg consensus for US 2026 growth remained steady at 2.15%, supported by the massive capital investments related to the AI spending taking place.
- US April CPI surprised to the upside, with the headline number printing 3.8% versus 3.3% the previous month, and core inflation at 2.8%. Higher energy prices are starting to exert upward pressure on prices. For now, it is all about oil and how much longer it will remain above $90 per barrel.
- The Fed kept rates unchanged at 3.5% to 3.75% at its April meeting, as expected. However, the tone was more ‘hawkish’ as three regional Fed presidents dissented over the inclusion of an easing bias in the statement. In the press conference, Fed Chairperson, Jerome Powell, acknowledged a “vigorous” debate about the guidance language, commenting that the centre of the Federal Open Market Committee was also “moving toward a more neutral place” but that “a majority of us didn’t feel like we needed to send a signal on that right now.” This was Jerome Powell’s last meeting as chairperson, but he indicated that he would stay on as a member of the Board of Governors. Kevin Warsh was voted in as the new chairperson.
- Europe’s growth expectations fell further from 1.1% to 0.8% as higher oil and gas prices are expected to negatively impact inflation and growth, creating a stagflationary environment. Japan’s economy expanded at a 2.1% annualised pace in the first quarter, much faster than expected, driven by enhanced consumption and robust exports. China’s data mostly disappointed, with retail sales, industrial production and property investments all coming out weaker than expected.
- Emerging markets had divergent outcomes in May, with semiconductor beneficiaries the big winners (Korea and Taiwan). Energy importers like South Africa and India underperformed.
- Commodities were mixed in May. Gold and PGM’s were down about 4% but copper gained over 4%. The Bloomberg Commodity Index was down about 4%, after reaching a 10-year high the previous month.
- Global bond markets had a volatile month as most Developed Markets saw 10- and 30-year bonds reprice higher due to expectations of larger deficits, putting pressure on funding these larger deficits.
- Given all the above uncertainties, we are closely aligned to our strategic asset allocation benchmarks.
