Global share markets experienced a negative performance this month as investor sentiment was dampened by concerns over US debt ceiling negotiations. This month faced limited gains, most of which were derived from US big name tech stocks such as Nvidia. In the banking space, First Republic Bank became the latest US lender to declare bankruptcy and surpassed Silicon Valley Bank (SVB) as the second largest US bank failure in history. Regardless of another blow to the health of the US banking system, wider concerns around the sector gradually subsided as the month progressed. In other news, this month saw global central banks implementing another round of interest rate hikes. However, there was further progress made in terms of reducing inflation, as the market continues to seek out that middle ground of both softer inflation and looser financial conditions.

Share markets on both sides of the Tasman were relatively weak this month. The ASX 200 slumped -2.5% as the Reserve Bank of Australia unexpectedly hit play again on their tightening campaign. Mining and energy stocks exacerbated the decline after further weakness in commodity prices. Not faring much better, the NZX 50 ended the month down -1.7%.

The NZD/USD fell -3.0% as the Reserve Bank of New Zealand surprised the market by indicating that they expect their latest cash rate hike to be the peak of this tightening cycle. Expectations of tighter policy from the Fed offered a good deal of support to the US dollar, while rising rate differentials also propped up the GBP. Elsewhere, the Turkish lira plummeted after election results confirmed five more years of President Erdoğan’s “unsustainable” economic policies.

Significant developments for May included:

• As expected, the Reserve Bank of New Zealand (RBNZ) increased the Official Cash Rate (OCR) by 25bps to 5.5%. The comments that followed the announcement came as a surprise, with the RBNZ stating that they anticipate 5.5% to be the peak of this cycle despite many economists upping their terminal rate forecasts to 6%.
• Tensions were high in May as market participants eagerly awaited a decision on whether Washington would vote to lift the US debt ceiling to avoid a default on its financial obligations. An in-principal agreement was established towards the end of the month after the proposed two-year deal passed through the House vote and brought the US economy closer to averting a fiscal catastrophe. By the time of writing, the bill stood with Biden to sign into law after securing safe passage through the Senate.
• Growth stocks (5.5%) heavily outperformed value (-1.7%) during the month as the technology sector rallied in light of positive developments surrounding artificial intelligence (AI). Nvidia, whose high-end chips are used to power AI applications such as ChatGPT, became the first chipmaker to reach a $1tn valuation.